EE Bonds – What are EE Series Savings Bonds?
Up until a few years ago, most savings bonds were issued in paper form, like you see above. Every kid grew up with a few of these stocked away. However now, the Treasury has ruined future generations by doing away with the paper bonds altogether. That’s right, today the only way to buy bonds is to buy EE series savings bonds is solely in electronic format.
With these old paper bonds, you purchased the bond for half of the face value. Meaning the $1000 bond seen above was purchased for $500, and that $500 accrued a fixed rate of interest year after year for up to 30 years. Eventually it would become worth more than $1000.
But times have changed. Today’s EE bond is a different animal than what your grandma gave you. Today’s bonds exist only in electronic format. (I guess you get to teach your grand kids about saving by giving them a printed out confirmation of a savings bond purchase?)
EE bonds earn interest for 30 years. Savings bonds purchased since May 2005 have a fixed interest rate for 20 years, then can be adjusted for the final 10 years. This adjustment is based on then current interest rates.
The bonds cannot be sold for at least 1 year, and if they are sold in less than 5 years you lose the last 3 months’ worth of interest as a penalty.
Today’s EE bonds are purchased at face value and slowly gain value as the interest builds. Note that this is unlike old paper savings bonds which were purchased at a discount of face value and took some time to be worth as much as their face value.
Individuals are limited to $10,000 of EE savings bond purchases per year, and you can buy any amount to the penny as long as it is over $25. (For example, a $50.23 bond)
Upon selling your savings bond, you do have to pay federal taxes on the interest you earned, but you are not required to pay state or local taxes. However, if the bonds are used for “Qualified education expenses” you do not have to pay tax on the interest. But be sure to read all the fine print on that benefit here: http://www.treasurydirect.gov/indiv/planning/plan_education.htm
Rates will change in the future, check out Treasury Direct’s EE bond page for the current interest rate: http://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm