TheU.S. Treasury'ssavings bond program was introduced in 1935 to encourage Americans to save money and invest in the American government. The Treasury has adapted to the times, however, and with rare exceptions, savings bonds are no longer printed on paper. The government sells savings bonds and other securities on its website.
Savings bonds now come in two versions: the Series EE and the Series I. Series EE bonds carry a fixed rate and are investments that are guaranteed to double in value over 20 years and expire after 30 years. The newer Series I bonds have both a fixed rate and a variable rate to keep up with inflation.
Key Takeaways
- The Series EE savings bond has a fixed interest rate of return.
- The U.S. government commits that Series EE bonds will double its face value by the 20-year maturity.
- The Series I savings bond has no guarantee of value at maturity.
- Series I bonds carry a fixed rate plus an adjustable interest rate based on inflation.
Series EE U.S. Savings Bonds
The better-known Series EE bond is a direct descendant of the Series E savings bond. The original Series E was known as the War Bond and helped finance the American participation in World War II.
Series EE bonds can be purchased with a face value of as little as $25. Face values are also available in penny increments over the base $25. So you could buy a bond for $25.32 if you desired.The maximum amount that one buyer can purchase in a year is $10,000. The bonds are issued to a single owner and cannot be sold in the secondary market.
Double Value Guarantee and Redemption
EE bonds come with a guarantee from the U.S. government to at least double in value over the term of the bond, which is commonly 30 years (although certain issues of EE bonds can have different maturities). In the usual case, after 20 years, the owner of the bond can redeem the principal or opt to let it collect additional interest for another 10 years beyond the doubling date.
Holders cannot redeem the bond before holding it for a year. After that anniversary, they may redeem at any time and will forego earning additional interest. If redeemed within five years of purchase, there is a three-month interest penalty imposed. Further, the minimum redemption amount is $25.
EE Series Interest Rate
The interest rate is fixed for 20 years at the time it is issued. The government may adjust the rate after the 20th year. Rates paid on series EE bonds are set twice a year, in May and November, and remain the same for all bonds issued during the following six-month period. As an example, for the six months ending April 2020, the interest rate on Series EE bonds was 0.10%.
The buyer of an electronic Series EE bond pays the full face value of the bond upfront. If compound interest does not double its worth in 20 years, the U.S. Treasury commits to making up the difference.
Interest income from EE bonds is exempt from state and local taxes but not from federal taxes. The owner may receive tax relief if the funds go to funding qualified higher education.
Series EE bonds issued before June 2003 were purchased at half the face value, with the promise that they would double to face value over 20 years. The interest for those older bonds is calculated on the payment amount, not on face value.
Series I U.S. Savings Bonds
Series I savings bonds are a relative newcomer, having been introduced in 1998. Unlike EE bonds, Series I bonds don't come with a guarantee to double in value over 20 years. Instead, Series I bonds are issued for a period of 30 years and have a rate of return that is fixed for the life of the bond plus an inflation-adjusted interest rate.
The adjustable rate is revised semi-annually, in May and November, and is based on the Consumer Price Index for All Urban Consumers (CPI-U). This CPI figure takes into consideration the products purchased by nearly 90% of the American population and is considered a better gauge of consumer spending. Series I bonds purchased during the six months ending October 2021, are paying 3.54% interest.
Buying Series I Bonds
The Series I bonds can be purchased directly from the U.S. Treasury. They also can be purchased via a tax return, using tax refund dollars. When using a tax return to buy Series I bonds, it is the rare case when the purchaser will receive a paper certificate.
There are also several similarities to Series EE bonds. Series I bonds can't be sold but can be redeemed early with a penalty of three months' interest if it's less than five years from the issue date.
Differences in the Series I Bonds
One potential bonus is that Series I bonds if used to pay the costs of higher education, may be exempt from federal taxes as well as state and local taxes—the bond must be redeemed and the proceeds used in the same calendar year to qualify.
The key difference between the two types of savings bonds is the adjustable rate. Series I bonds do not carry the same guarantee of doubling in value over 20 years, but they do have a built-in inflation adjustment.
What's the worst that could happen? The owner of a Series I bond could be hit with years of low inflation or even deflation, and fail to get the doubling in value over time.
FAQs
I bonds offer an inflation-protected return, ensuring your savings keep pace with rising costs. EE bonds, on the other hand, provide a fixed-interest rate for the life of the bond, offering a predictable return.
What is the downside of an I bond? ›
The cons of investing in I-bonds
There's actually a limit on how much you can invest in I-bonds per year. The annual maximum in purchases is $10,000 worth of electronic I-bonds, although in some cases, you may be able to purchase an additional $5,000 worth of paper I-bonds using your tax refund.
Why would anyone buy EE bonds? ›
Series EE savings bonds are a low-risk way to save money. They earn interest regularly for 30 years (or until you cash them if you do that before 30 years). For EE bonds you buy now, we guarantee that the bond will double in value in 20 years, even if we have to add money at 20 years to make that happen.
Do EE bonds really double in 20 years? ›
Key takeaways
Series EE bonds issued today will mature in 20 years, and they are guaranteed to double in value over that time. You can let the bond continue to accumulate interest for an additional 10 years after maturity.
How long does it take for a $100 EE savings bond to mature? ›
Series EE bonds mature in 20 years but earn interest for up to 30 years. The U.S. Treasury guarantees Series EE bonds will double in value in 20 years. You don't receive the interest on your Series EE bond until you cash it.
Will you ever lose money in an I bond? ›
Boxenbaum, chief financial planner and investment retirement advisor at Statewide Financial Group. “With I bonds, your principal is protected and safe. However, if you cash the bond out before five years, then you will lose up to the last three months of accrued interest.
Should I buy I bonds or EE bonds? ›
I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.
Do EE bonds lose value after maturity? ›
Therefore, the Treasury has increased efforts to encourage bondholders to redeem their matured savings bonds. As of June 2024, there were 96 million matured unredeemed savings bonds held by investors. If bonds are held past their maturity date, the bonds can lose value due to inflation.
Are I bonds worth it in 2024? ›
The current I-bond rate, valid for bonds issued May 1 through Oct. 31, 2024, is 4.28%. That includes a fixed rate of 1.30%. To put that in context, the best high-yield savings accounts and the best CD rates are giving returns over 5%.
How much is a $50 Patriot bond worth after 20 years? ›
After 20 years, the Patriot Bond is guaranteed to be worth at least face value. So a $50 Patriot Bond, which was bought for $25, will be worth at least $50 after 20 years. It can continue to accrue interest for as many as 10 more years after that.
Interest earned on I bonds is exempt from state and local tax but subject to federal tax. The interest is taxed in the year the bond is redeemed or reaches maturity, whichever comes first.
How to avoid paying taxes on savings bonds? ›
You can report the interest each year you earn it or when you cash the bond. You will report it on Schedule B of your 1040. You can avoid these taxes by using the money for qualified higher education expenses.
What is a better investment than I bonds? ›
Unlike I-bonds, TIPS are marketable securities and can be resold on the secondary market before maturity. When the TIPS matures, if the principal is higher than the original amount, you get the higher amount. If the principal is equal to or lower than the original amount, you get the higher original amount.
When should I cash in EE savings bonds? ›
You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
What documents do I need to cash a savings bond? ›
If you're cashing in a paper savings bond of $1,000 or less, you'll need FS Form 1522 and a copy of your driver's license, passport, state ID or military ID. If the bond amount is more than $1,000, you must have your signature certified by a notary or certifying officer.
Are series EE bonds taxable? ›
The interest on EE bonds isn't taxed as it accrues unless the owner elects to have it taxed annually. If an election is made, all previously accrued but untaxed interest is also reported in the election year. In most cases, this election isn't made so bond holders receive the benefits of tax deferral.
What is the projected I bond rate for 2024? ›
May 1, 2024. Series EE savings bonds issued May 2024 through October 2024 will earn an annual fixed rate of 2.70% and Series I savings bonds will earn a composite rate of 4.28%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.
How long should you keep money in an I bond? ›
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest. See Cash in (redeem) an EE or I savings bond.
Why is bond not a good investment? ›
The interest income earned from a Treasury bond can result in a lower rate of return versus other investments, such as equities that pay dividends. Dividends are cash payments paid to shareholders from corporations as a reward for investing in their stock.
