Savings bonds can be used as a savings tool in your financial portfolio. Savings bonds are low-risk products that can be purchased in either paper or electronic form. Learn more about I Bonds, and Series EE savings bonds, and what they have to offer as a financial tool.
EE Bonds
EE Savings Bonds replaced the Series E Bonds long associated with World War II. At that time, they were presented to the public as a way to aid the war, and these ‘war bonds’ were promoted with posters, some of which can be found in museums.
The EE Patriot Bond, in the same manner, was first issued on December 11, 1991, the three-month anniversary of the September 11 terrorist attacks. The proceeds from these bonds go to the government’s fight against terrorism.
EE Bonds can be purchased in electronic or paper versions. Bought electronically, EE bonds are sold at face value, meaning a $50 bond costs $50. They can be bought at $25 increments up to a $5,000 yearly limit. These EEs are worth full value when they are ready for redemption. They can be purchased online, at most financial institutions-banks and credit unions, and through payroll deduction plans at participating employers.
Paper EE Bonds, however, are bought at half their face value-$25 for a $50 bond-but they don’t reach their face value until they’ve matured. If you have paper bonds, they can be converted into electronic bonds at TreasuryDirect, www.treasurydirect.gov.
Interest on EE bonds purchased after May 1, 2005 is fixed; bonds purchased before that date earn interest based on 5-year Treasury security yields, and therefore, vary. EE Bonds redeemed within the first five years will face a forfeiture of three months’ interest; after five years, there is no penalty.
Individuals, corporations, and organizations can own paper Series EE bonds. As of April 2009, individuals and some organizations can own electronic bonds.
To find out the current value of your bonds, visit www.treasurydirect.gov/instit/savbond/price/price.htm
I Bonds
The I Bond, or Inflation Indexed Bond, is sold at face value-you pay $50 for a $50 bond-and are sold in denominations of $50, $75 $100, $200, $500, $1,000, and $5,000. They earn interest for up to 30 years, the interest being added monthly, and compounded twice a year.
I Bonds are exempt from state and local income tax, and are federal tax deferred until they are cashed or reach the 30-year date and stop earning interest. These bonds must be held for five years before cashing, or a three-month interest penalty will be applied. After the five years, no penalty applies when cashing.
I Bonds, like EE Bonds, can be purchased in both paper and electronic forms, and a $5,000 yearly limit applies.
Having an account at TreasuryDirect (www.treasurydirect.gov/indiv/myaccount/myaccount_treasurydirect.htm) allows you to purchase, manage and redeem bonds online, as well as convert paper bonds into electronic bonds.
If you have a social security number, you can own a Savings Bond, if you: are a resident of the United States; are a citizen of the United States living abroad, but have a US address; are a civilian employee of the United States. Minors may also own savings bonds.
You may also buy savings bonds as gifts; they do not count against your yearly limit when purchased for this reason.
Sources:
US Department of the Treasury www.treas.gov/offices/treasurer/savings-bonds.shtml
Treasury Direct www.treasurydirect.gov
