US Savings bonds have two forms: EE bonds and I bonds.  These bonds are backed by the government and so they offer a guaranteed return and are a safe way to invest. They are exempt from state and local taxes which is their main benefit.

The EE bonds have a minimum of $25 and can be bought electronically or on paper. With the electronic EE bond, you are limited to $5,000 each year and they are sold at face value.  The paper EE bonds are only sold in certain denominations and have the same limitation per year as the electronic.  The paper bonds are sold as half their face value and until the bond has matured, it is not worth its face value.

Both types of bonds have a three month early redemption penalty. If you redeem this in the first five years you will be charged this penalty. After five years, no penalty. You can avoid the taxes on the interest earned if you use your savings bonds to pay for a college education. The qualification here is that the person who buys the bonds must be at least twenty-four years old and a taxpayer. You sill need to meet certain income requirements.