• Savings bonds have advantages and disadvantages.savings bonds image by Stephen VanHorn from Fotolia.com
  
  During World War II, many Americans purchased US savings bonds as an act of patriotism. Similarly, three months after Sept. 11, 2001, the Treasury introduced the Patriot EE Bonds to help finance the war on terror. Today, you can purchase two different types, EE Bonds and I Bonds. In addition to demonstrating patriotism, these bonds have many advantages for convenience and safety, although they have a few disadvantages.
  
  

Ease of Purchase and Redemption

• You can purchase EE or I Bonds over the Internet through Treasury Direct, from banks and through payroll deduction plans at work. Not all financial institutions sell the bonds, nor do all employers offer payroll deduction. You need to ask. Savings bonds come in convenient denominations. EE and I Bonds come in amounts starting at $25. You can purchase a maximum of $5000 of each type in each year. You can redeem bonds after one year with a three-month interest penalty. Redeem paper bonds at financial institutions, or redeem electronic bonds online at Treasury Direct. After five years, you can cash your bonds without penalty.
  
  

Convenient Ownership Options

• You can take title as an individual, as a co-owner or with a beneficiary. You can also buy the bonds as a gift, including for minor children. Savings bonds make a good gift for children because children usually have little or no income. They can accept the interest for tax purposes annually, thereby paying no tax or low tax. The parent should file a tax return declaring the interest.
  
  

Safety

• Because the US government backs them completely, EE and I Bonds keep your money as safe as the US Treasury. If you never receive your paper bond, or if you lose it, you can fill out a request for replacement.
  
  

Convenient Tracking

• You can keep track of your bonds at Treasury Direct.laptop image by Angie Lingnau from Fotolia.com
  
  You can easily keep track of your investment by using the Savings Bond Calculator at Treasury Direct. You can save the record to your computer and update it from time to time, as well.
  
  

Interest Rate Advantages of EE Bonds

• EE Bonds of May 1995 issue or later earn a fixed rate decided May 1 and Nov. 1 each year. This rate applies to bonds dated in the six subsequent months. You purchase EE Bonds for half the face value. As an advantage, if they have not doubled in 20 years, the Treasury will bump the value to face value at 20 years. After one year, you can sell them.
  
  

Interest Rate Advantages of I Bonds

• I Bonds pay an interest rate combining a fixed number with an inflation rate. The fixed rate remains the same until maturity, but the inflation rate varies.This combination interest rate combats inflation risk, an advantage for the saver. The bonds remain qualified to earn interest for 30 years. Unlike some other bonds, the face of the bonds remains intact.
  
  

Tax Advantages of US Bonds

• You must pay federal income tax on interest on both EE and I Bonds. However, you can choose to defer the tax until maturity or until you cash the bonds. You also must pay both state and federal estate taxes on the bonds (when in force), but you do not have to pay state income taxes on the interest.
  
  

Interest Disadvantages

• Although your bonds continue to be eligible for interest for 30 years, the fixed interest rate on EE Bonds may become a disadvantage if interest rates soar. I Bonds can sometimes drop to a zero interest rate in case of deflation. Also, savings bonds frequently pay a lower return than other riskier investments. If you forget to cash them, both bonds cease earning after 30 years.
  
  

Other Disadvantages

• Make sure your bonds pass to your heirs.savings bonds image by judwick from Fotolia.com
  
  You cannot cash in either EE or I Bonds before one year. According to Jane Bryant Quinn, you cannot borrow against savings bonds. If you should die without a will, and you have not named a co-owner or beneficiary, your heirs will face difficult paperwork to assume ownership. Having a stated beneficiary on your bonds or including their disposition in your will can ensure that this safe and conservative investment will pass more easily to your heirs.