Series EE savings bonds are a type of savings bond issued by the U.S. Department of the Treasury that guarantees they will double in value over 20 years. You can purchase a Series EE savings bond for amounts ranging from $25 to $10,000.
Definition and Examples of Series EE Savings Bonds
Series EE savings bonds are electronic savings bonds issued by the U.S. Department of the Treasury. The interest on these bonds accrues until they are redeemed or renewed after 30 years. The Treasury Department guarantees that they will double in value after 20 years.
Note: Savings bonds are considered safe investments because the U.S. government can use its authority to levy taxes or increase the money supply to pay them, and they are backed by the “full faith and credit” of the U.S. government.
Saving bonds also have tax advantages. The interest earned on Series EE savings bonds is not subject to state or local taxes. Federal taxes on the interest can be deferred until the bonds are redeemed, or completely avoided if the savings bonds are used to pay for qualified educational expenses.
Due to their low risk, interest rates on Series EE savings bonds are generally low. The interest rate is 0.10% annually as of 2022, but the Treasury guarantees that these bonds will double in value over 20 years. It will make a one-time adjustment to achieve this guarantee if you hold the bonds for a long time.
For instance, if you buy $5,000 worth of Series EE savings bonds and hold them for 15 years, at the end of 15 years, the value of your $5,000 will be $5,075.53, with the interest amounting to $75.53 subject to federal income tax. Waiting an additional five years will increase the value to $10,000 with the Treasury’s one-time upward adjustment.
How Series EE Savings Bonds Work
The Treasury no longer issues paper savings bonds. Savings bonds can only be purchased through the Treasury’s website, TreasuryDirect. You can create an account and use it to buy Series EE savings bonds and other savings bonds, redeem any bonds you currently own, check the value of the bonds you own, or buy a gift bond.
Note: The Treasury sets the interest rate for Series EE savings bonds every six months, on May 1 and November 1. For May 2022 through October 2022, the rate is 0.10%, the same rate since November 2015. It has not exceeded 1% since November 2011. Before 2005, the rate was set at 90% of the average yield of five-year Treasury securities during the previous six months.
Interest is not paid to investors as it is in a traditional bond. The interest accumulates in the investor’s account and is paid to them when they redeem the bond on the TreasuryDirect site.
You must hold the bonds for at least one year and can hold them for up to 30 years. If the bonds are redeemed within five years of purchase, the investor loses the interest earned for the three previous months. After five years, the investor loses no interest.
Alternatives to Series EE Savings Bonds
Series EE savings bonds are not the only option for fixed-income investments issued by governments. Here are some alternatives that can provide similar benefits in terms of low risk and reliable returns.
Series I Savings Bonds
Series I savings bonds are similar to Series EE savings bonds, and both are sold on the TreasuryDirect website. Series I savings bonds offer interest based on the current inflation rate, making them designed to reduce inflation risk. They have the same tax advantages as Series EE savings bonds. You can buy paper versions of Series I savings bonds using your tax refund.
Treasury Bonds and Bills
In addition to…
To long-term savings bonds with maturities ranging from 10 to 30 years, the Treasury Department also issues bonds and bills with shorter maturities. Treasury bonds are considered medium-term bonds with maturities ranging from two to 10 years. Treasury bills are considered short-term bonds with a maturity of less than one year.
Note: Treasury bonds and notes are fixed-value securities that pay semiannual interest and return the principal at maturity. Treasury bills are zero-coupon bonds, meaning they do not pay interest but are sold at a discount to their par value.
Interest rates for Treasury bonds are set at issuance and then change on the secondary market. Unlike savings bonds, investors can buy and sell Treasury bonds on the secondary market.
Like savings bonds, Treasury bonds backed by the “full faith and credit” of the U.S. government are free of credit or default risk.
Municipal Bonds
Municipal bonds, or munis, resemble Treasury bonds but are issued by government entities such as states, counties, cities, or towns to fund public projects like roads or schools. Many municipal bonds pay tax-free interest to investors.
Generally, municipal bonds are considered riskier than Treasury bonds because municipalities have less taxing authority than the federal government. However, many municipal bonds are considered less risky than corporate bonds or other fixed-income investments.
Takeaway
Savings bonds Series EE are issued by the U.S. Treasury. These bonds guarantee investors double their value after 20 years. The interest rate as of July 2022 is 0.10%. If you wish to read more content like this, you can subscribe to The Balance newsletter for daily insights, analyses, and financial tips delivered directly to your inbox every morning!
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Sources:
– U.S. Department of the Treasury. “Series EE Savings Bonds.”
– U.S. Department of the Treasury. “Treasury Bills.”
– FINRA. “U.S. Savings Bonds.”
– U.S. Department of the Treasury. “May 1997 to April 2005 (Rates and Terms for EE Bonds).”
– U.S. Department of the Treasury. “Series I Savings Bonds.”
– FINRA. “U.S. Treasury Securities.”
– FINRA. “Municipal Bonds.”
Source: https://www.thebalancemoney.com/what-is-a-series-ee-savings-bond-5525335
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