When considering various investments and savings options for making your money grow, it’s a good idea to know a little about each type of investment. The US Savings Bond is one of the most risk-free investments available, because the US government is repaying you. You can count on receiving the expected amount when the bond matures.

There are different types of savings bonds. The Series EE and Series I savings bonds both have certain types that can be cashed in without paying federal income tax on the interest the bonds have earned. Other types of US savings bonds will require that you pay federal income tax on the money the bonds earned you while your money was invested.

Because US savings bonds are virtually risk free, the amount of interest you earn will be much lower than that which could be earned with successful stocks. People generally invest in savings bonds when they’re looking to diversify their portfolio and include a number of different types of investments with varying levels of risk. US Savings bonds are rarely the only investment strategy an individual would use – instead, they become part of a portfolio that might include mutual funds, stocks and other investments, as well.

The biggest risk when it comes to US Savings bonds is inflation. When you buy a bond, it’s like the government is issuing you an IOU to pay you back at some date in the future the amount of your investment plus the interest. Some bonds have a fixed interest rate which will not change, and others have variable interest rates. For fixed interest rate bonds, if the interest rate on the bond is 6% and inflation is 3%, then you make a real return of 3% (the 6% interest minus the 3% for inflation). On the other hand, if the inflation heats up to 8%, then you are worse off because the cost of living has increased more than what you’ve earned in interest by tying your money up in US Savings bonds.

In order to counter the effects of inflation and the risk of inflation on US savings bonds, you could invest in the “I” bond. The “I” bond is a US Savings bond that increases it’s interest rate when the rate of inflation increases, ensuring that your investment will keep up with the changes in the cost of living. So while the overall interest will still be lower than other, riskier investments, it eliminates the risk of inflation eating away your profits.