The Role of US Savings Bonds

For people looking for ultimate safety, the US Savings Bond is one of the more safe investments there are out there. They are about as risk-free as you can get because it's the U.S government itself which pays you interest on them. At maturity, you'll know you'll get the return promised you when investing in them.
 
There are a variety of savings bonds to choose from, and the major differences are whether you will have to pay interest on them or not when you cash them in. The Series I and Series EE are two that you can invest in without being concerned over paying federal income tax on the interest earned. Other types of US Savings Bonds to require taxation on the interest, so be sure to check that out as part of your strategy.
 
When taking into account the risk-free factor, along with that comes low returns, as the higher the potential returns the bigger the risk, while at the same time the lower the risk the less returns you'll get. So with US Savings Bonds, you aren't going to get a great return on your money, but you will know that you'll have your money will a little more added to it when the bond matures.
A US Savings Bond normally is a place to park money you want to keep safe and as a cushion, while at the same time placing your money in a little more risky investments to get better returns to build your wealth.
 
Although there is no risk to your capital with US Savings Bonds, there are nonetheless a major risk, which all low-interest investments have, and that is the rate of inflation, which could eat up your gains by being greater than the interest rate you are receiving. This is at times called the "hidden" tax, and that's absolutely the case. Most people are unaware of this and don't take it into account when investing in low-interest bonds.
 
One nice thing about US Savings Bonds and other safe investments, is the availability of alternative bonds which will provide you with protection by having a build in trigger which allows for inflation. So if inflation rises, the bond interest rate will rise along with it. These are called "I" bonds, in the case of US Savings Bonds.
 
Your decision on what the best bond to invest in is determined by the interest rate and inflation environment that exists at the time. If you believe inflation will stay low, than a fixed rate bond would probably be the way to go, as you'll make above the inflation rate while making a small increase above that. If interest rates are low and inflation could increase significantly, a variable rate bond would be the best bet under those conditions.