1) There are two types of saving bonds: EE Savings Bonds & I Savings Bonds.
EE bonds provide a fixed interest rate which will remain constant through the life of the bond. I bonds are more complicated, they have a fixed component , and a variable component which changes every 6 months based on inflation. EE bond will always pay a higher yield than the fixed component of an I Bond. In fact, the fixed component of I Bond right now is zero. You earn no fixed interest.
2) EE Savings Bonds Are A Great Long Term Investment for 3 Reasons
- SAFETY: Just like a Treasury bond, the safest investment known to mankind, US Saving Bonds are backed by the Full Faith & Credit of the US government.
- GOOD YIELD: When held to maturity (20 years after purchase), an EE Savings bond is guaranteed to double in value. Your effective yield is 3.5% (learn how you can earn 3.5% with a savings bond here). I Bonds do not offer this benefit.
- TAX DEFERRED COMPOUNDING: You don’t have to pay any taxes until you cash in your bonds.
3) EE Saving Bonds Are A Terrible Short-Term Investment
If you don’t think you can wait 20 years to cash in a savings bond, you should not get one. First of all, you cannot legally sell a savings bonds. You can only redeem them with the US Treasury. You’re not allowed to redeem them at all until you have held them for at least 12 months. After that, you have to pay a penalty, which is a minimum of 3 months of interest. Most importantly, the interest rate sucks if you don’t hold EE bonds to maturity. Forget about earning 3.5%, you won’t even receive 1% based on the current rate.
4) Have you lost paper savings bonds?
Join the club, there are over $10 billion dollars worth of unclaimed savings bonds. Uncle Sam wants you the have the money and has set up the site TreasuryHunt.gov to help you recover them.
5) You can no longer buy paper savings bond. You must go to TreasuryDirect.gov and order them online.
This lesson is part of our Free Guide to Buying Savings Bonds. Continue to the next lessonhere.