U.S. Savings Bonds: I-Bonds and EE-Bonds – Good investment? (Part 2)

March 20, 2005 By Jonathan Ping 7 Comments
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(This post is continued from Part 1)

Okay, so we went over I-Bonds for a little bit, now let?s see what EE Bonds have to offer. Again, EE-Bonds share many characteristics with I-Bonds, which were outlined in my previous post. However, EE-Bonds are sold at half of face value ? a ?$50 EE Bond? costs $25. Whenever a contest offers you a ?$50 Savings Bond?, odds are it?s an EE-Bond.

The rate that an EE-Bond pays is calculated as 90% of the average yields on 5-year Treasury securities for the preceding six months, and it is updated twice a year at the same time as I-Bonds (see historical rates here). One interesting wrinkle is that EE bonds issued after 6/2003 are also guaranteed to double after 20 years, no matter what the interest rates are (that’s about 3.52% compounded annually). For example, that $50 contest bond that cost $25 will reach the value on the front ($50) in 20 years no matter what. I-Bonds have no such guarantee.

Now the question is, should anyone buy these? In my opinion, people in high local and state tax areas like California and New York should definitely look into them, especially if you are looking into something safe and liquid after about a year.

Personally, I am going to wait until May 1st to see what the new interest rates are. I-Bonds bought until then pay 3.67% for the next six months, while EE-Bonds are paying 3.25%. EE Bond rates are mostly likely to rise, due to the rising 5-year Treasury rates. I’m not sure about I-Bonds, I don’t think they are going to rise much in May but who know about the future? (I do think the gov’t is going to have to inflate us out of this national debt somehow). If the fixed portion of I-Bonds remain at 1.0%, I won’t be buying them for sure.

Right now, banks like Emigrant Direct are also offering competitive rates as well for people’s money, although the interest on that is fully taxed at the state and local levels. Hmm, tough decision.

Filed Under: Savings Bonds
Last updated: October 5, 2011
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Comments

  1. JR Penn says
    March 20, 2005 at 12:17 pm

    is the interest taxed on a federal or income tax??

    I’m in Vegas, no state income tax.. would that mean the interested on Emigrant Direct would be tax free?

    Reply
  2. jp says
    March 20, 2005 at 2:29 pm

    Interest earned from Emigrant is considered earned income, and will be taxed at the federal level.

    Reply
  3. peter baleyko says
    March 28, 2007 at 4:45 am

    I have purchased US I Bonds at various dates. How can I get the current market value of these bonds? Also, can I transfer ownership to another person?

    Reply
  4. Jonathan says
    March 28, 2007 at 10:38 am

    Check out TreasuryDirect.gov, they have a variety of tools to check.

    Reply
  5. Donna says
    July 28, 2007 at 12:17 pm

    I purchased 2 $100 EE Savings Bonds in 1987. Should I consider redeeming them now?

    Reply
  6. William says
    March 22, 2010 at 11:28 pm

    @Donna i know you posted like 3 years ago… but, you might want to check it out, i think they earn interest for 30 years but have no penalty to cash after 5 years.

    Reply
  7. Lisa Arsenault says
    October 27, 2011 at 9:46 pm

    Help With Our 8 year olds EE Bonds

    Hello Jonathon, Thank You for letting us ask you a question our 8 year old daughter has 20 E E Bonds there total value now is only 1.290.00 when they are fully matured there value will be approx 2,100 Our question to you should we cash them in now and put them into a I Bond instead for face value? Or should we just keep them as they are ?? Like other people we are trying to get the most out of them for her but they will not fully mature until another 12 years or so we would Appreciate any suggestions you may have? Thank You Arsenault”s

    Reply

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