Top Eight Places to Stash Cash -- Savings Bonds

With a savings bond, you're literally making an investment in the U.S. government. The two most common types of savings bonds consumers purchase are Series EE and Series I (for inflation) bonds.

Who's It For?

Excellent vehicles for savers looking to invest long-term and who don't mind a relatively low rate of return in exchange for stability and tax-deferred interest. Since you don't pay taxes on the interest until you actually cash them in, they can also be helpful in controlling income for tax purposes.

You can't cash them in for the first year, so they are not a good choice for money you might need immediately.

If either Series EE or I are used for college, then the interest is tax-free. Tuition-tax benefits and a lengthy maturity cycle have long made them a favorite gift for grandparents who want to contribute to a grandchild's education.

Series I bonds pay a rate that's adjusted for inflation, so consumers also use them as a hedge against an economic downturn.

Pros

Reliable: Savings bonds have a fairly predictable rate of return. You pretty much know what they'll be worth in the end when you buy them. I bonds have two interest rates, one that will vary with inflation.

Tax break: Interest may be tax-free if used for education, depending on the savings bond.

Low minimum: Savings bonds don't require a large amount of money. You can get an EE bond for as little as $25.

Security: These are backed by full faith and credit of the U.S. government, at least to a certain extent.

Cons