What are savings bonds and how do they work?

Question

Are they worth the investment. I want to purchase a house in the future and I heard that if you put say $400 in a savings bond they double up every year. Is that true? If so, would it be worth it to purchase one and don't not touch until 5-7 years from now?

Answer 1

They do not double every year. I-Bonds, for instance, are yielding around 4 percent, which, if the rate stayed the same*, would result in a doubling every 18 years. They're not bad investments for long term. You don't pay tax on the interest until you redeem them and the tax goes away altogether if you use them for educational expenses.

*I Bonds have a fixed component and a variable inflation-related component which changes every six months.