The Disadvantages of a US Savings Bond

• U.S. savings bonds are seen as one of the most reliable investments possible. These bonds are used by the United States government to help average citizens invest money. Since they are backed by the government itself, these bonds are some of the most trustworthy securities possible. There are several different kinds of bonds that mature in different ways to gain investors profit. While these bonds are popular and available to all, they do come with some disadvantages.

Limits

• Savings bonds are not designed for large investment amounts. The United States creates Treasury bonds for individual investors and businesses that are serious about investing large sums of money. Savings bonds are typically available in smaller amounts starting at $20, and there is a cap on maximum investments. This cap is set at $15,000 for EE bonds and $30,000 for I bonds.

Maturation

• Savings bonds, like other bonds, have a maturation date, a date a certain number of years in the future during which the bond will increase in value until it can be redeemed at a profit. EE bonds start at half their face value and slowly work toward face value as they mature. I bonds start at face value but increase at a set percentage like other bonds. Either way, investors must wait at least several years to gain the full profit from their bonds.

Risk

• Savings bonds are very low risk. While at first this may seem like a good thing, it creates problems for investors who want to make a large profit easily. With low risk often comes stable performance -- and no chance for the security to suddenly increase in value. The element of risk makes the payoff higher, and many other investments come with better payoffs than savings bonds.

Taxes

• Taxes with savings bonds can be tricky. You can exclude any interest earned on the bonds if your income falls below a certain level (adding in the bond amount as income first), but if not you have to pay taxes on the interest, and early redemption fees may apply based on when you cash in the bond. The exception takes effect if the money is used for education expenses, provided the owner of the bond is over 24 and is using the money for education in the family.