Are Series EE savings bonds a good deal?
The Series EE bond is a 30-year, fixed-rate savings bond. There is no adjustable component to act as a hedge against inflation, but the Treasury does provide a guarantee.
The fixed-rate makes the EE a good deal when interest rates are high, but that doesn’t necessarily mean it’s a bad deal when rates are low. That’s because the government guarantees that, at a minimum, the value of the bond will double in 20 years. If the value of the bond hasn’t doubled within that time, the government will make up the difference with a one-time payment. The bond will then continue earning interest for the next 10 years.
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A new interest rate for the EE bond is issued every May 1 and Nov. 1. The rate is effective for all EE bonds issued during that 6-month period. The bonds increase in value monthly and the interest is compounded every 6 months.
The EE must be held for a minimum of 12 months. There is a penalty of 3 months’ interest if the bond is cashed in less than 5 years.
Electronic EE bonds are sold online at TreasuryDirect.gov.
Electronic EE bonds are sold at face value. If you spend $50, you’ll get a $50 bond.
The minimum price for an electronic EE bond is $25. You can buy a bond for any price above that, to a maximum of $10,000 in a calendar year.
As with all Treasury products, interest earned on the EE bond is subject only to federal tax; it is exempt from state and local taxes. You may not have to pay federal tax if you use the bond for qualified higher education tuition and expenses. Payment of federal income tax can be deferred until the bond is redeemed or when it stops earning interest, whichever comes first. Savings bonds are subject to estate and inheritance taxes, both federal and state.
EE bond at a glance:
- An accrual security.
- Fixed rate of return.
- New interest rates are issued semiannually.
- Online bonds can be bought for any amount between $25 and $10,000.
- Interest earned is subject to federal but not state or local income tax.
- You can defer federal income tax until you redeem the bonds, or they stop earning interest after 30 years.
- Special tax benefits are available for education savings. If you qualify, you can exclude all or part of the interest earned on EE Bonds from income when the bonds are redeemed to pay for post-secondary tuition and fees.
- No inflation protection is offered.
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