If you are considering investing in savings bonds, it is wise to understand the different types and how they can affect your investment portfolio. There are two main types of savings bonds. These include EE and I bonds, but what is the difference between them and which is better? Here you will find everything you need to know about EE and I bonds to help you decide which would be the best option for your situation.
What is an EE series savings bond?
According to Treasury Direct, EE savings bonds are available for purchase only in digital form. They are securities sold through the US Department of the Treasury These are electronic bonds that are sold at face value in any amount of $ 25 or more. Interest earnings on an EE bond depend on when it was originally purchased. Fixed rates were established for the bonds issued from May 2005 to the present. The bonds issued from May 1997 to April 2005 were sold at variable interest rates. The maximum amount you can buy is up to $ 10,000. Interest on EE savings bonds is earned monthly and compounded semi-annually for 30 years. The maturity date of EE savings bonds is 20 years. You can collect these bonuses at any time after 12 months from the date of purchase. If you redeem them during the first five years, you will lose three months of interest as a penalty. This means that if you cash in on an EE bond after 18 months, you only get 15 months of interest.
What is a Series I savings bond?
I bonds are securities sold by the US Department of the Treasury.They can be purchased on paper and you are allowed to buy them at face value with your IRS tax refund. A $ 50 bond has a face value of $ 50. They also come in digital format. The minimum face value is $ 25. You can buy them for any amount. I bonds bear interest at a fixed rate with an inflation rate calculated twice a year. The bond accrues interest on a monthly basis, compounded semiannually until the bond reaches maturity at 20 years. You can redeem the voucher after 12 months from the purchase date. If you redeem it during the first five years, you will lose three months of interest as a penalty.
What are the differences between Series EE and Series I savings bonds?
There are several extreme differences between Series EE and Series I savings bonds. The most obvious is that I bonds are available in electronic or hard copy form. You can no longer buy Series EE savings bonds on paper. You can buy up to $ 5,000 in Series I savings bonds with your paper tax return. This limitation does not exist for the electronic I or the EE Series.
According to The Nest, Series EE bonds carry a variable interest rate. Series I bonds have a fixed rate. Series I bonds are optimized with a predictable yield structure. The interest rate is fixed twice a year for six months. The bonds hold that interest rate until it is redeemed. There is an inflation protection built into the yield structure that allows interest rate changes at six-month intervals, associated with the consumer price index. The rate can never stop at zero or drop negative. This system preserves the earning potential of I bonds.
Series EE bonds belong to a new electronic issuance system that automatically sets the face value at the time the bond is issued. A flexible adjustment tool makes the bond more flexible at times when the interest rate fluctuates. The differences between the two types of savings bonds are slight. Investments in Series EE savings bonds guarantee an annual return of 3.5 percent over a 20-year period in which the bond will mature at its full face value. It can be held to earn interest for an additional 10 years. At age 30, you stop accruing interest. The ideal time to collect an EE bond is year 30.
According to Investopedia, Series EE bonds are guaranteed to double in face value upon maturity in 20 years. Additionally, you will earn interest if you are allowed to get to year 30 with a fixed interest rate of return. Series I bonds have no guarantee of value at maturity. They have a fixed rate plus an adjustable interest rate that is based on inflation.
Which is better?
Series I savings bonds increase in interest at a faster rate than many other secured investments during typical business cycles. According to the Journal of Accountancy, electronic bonds can be purchased at a maximum face value of $ 60,000 per year …