Series EE Savings Bonds

A savings bond is a great option for people who want a safe place to put their money, but want more interest than a savings account can offer. There are a few types of savings bonds, but Series EE bonds are one of the best for first-time savers and investors. You can read about the other types on the Treasury Direct website.

How do they work? A Series EE bond is a way of loaning money to the U.S. Government. When you buy a savings bond, you purchase it at face value. So a $25 savings bond will cost $25. You can then hold it and collect interest for up to 30 years. At the time of this writing, a Series EE bond pays 0.60% fixed rate of interest.

However, while the interest rate is higher than most savings accounts, you must hold it for at least a year, and you will be charged a penalty if you hold it for less than 5 years. If you need to redeem your bond before the 5 year mark, you will lose previous 3 months worth of interest. If you hold it for at least 5 years, you can cash in without any penalty. The interest on a Series EE Bond is subject to federal taxes.

Pros of EE savings bonds. Savings bonds are safe, as they are backed by the U.S Government. As long as the U.S Government doesn’t collapse, you will get your money back. And if the government does collapse, there are probably bigger problems to worry about than your money.

Furthermore, if you use the bonds to pay for education, they might be exempt from federal taxes under some circumstances. Check with your tax specialist to see if you qualify.

Cons of EE savings bonds. While Savings bonds pay slightly higher interest than most savings accounts, the current rate of 0.60% is still less than the rate of inflation. In addition to the low rate, you are locking away your money for at least one year, and you will be penalized if you take it out within 5 years. For some people this is a good thing, because it forces them to save. But if you have an emergency, you might not be able to get your money when you need it.

A savings bond is a good choice for someone who already has a sufficient emergency fund built up and wants to branch out into other savings tools. They are also good for saving for college, as they might be tax free if used for education.

A Series EE bond can be purchased directly from the U.S Government by going to the Treasury Direct website.