In investing, patience pays off. Series EE bonds are a great example of that. If you invest in Series EE bonds, your money is guaranteed to double in 20 years. The US government guarantees them, so they are as risk-free an asset you can get. An added benefit is that the taxes are deferred until you sell the bonds.
You can buy the Series EE bonds directly from Treasury Direct. The Treasury no longer issues paper bonds.
Interest rate not as bad as it looks
Series EE bonds a fixed interest rate that is set at the time of purchase. The interest rate can look deceptively low, but at the end of 20 years, the treasury will make a one-time adjustment to ensure that your investment is worth twice what you invested. That is a guaranteed 3.5% return over 20 years. The key here is that, in order to get a 3.5% return, you have to hold the EE bonds for 20 years.
You have to hold these bonds for 2o years to double your money. But you can hold them longer, up to 30 years. Treasury will adjust the interest rate after 20 years based on market conditions. Since the interest rates on EE bonds are low, you will be better off redeeming the EE bonds after it doubles in 20 years.
The maximum investment is $10,00o per person per year. You purchase EE bonds for as little as $25.
The minimum holding period is one year. If you sell these bonds before 5 years, you will lose out on 3 months of interest. If you sell them after 5 years, there is no penalty.
Taxes are deferred until you sell the EE bonds. If you use the interest earnings for education purposes, you can exclude them from federal taxes, subject to income limits. EE bonds are exempt from state taxes.
EE Bonds Vs Series I Bonds
EE bonds are guaranteed to double in 20 years. There is no such guarantee with the I series bonds. Interest on I series bonds consists of a fixed interest rate and a floating interest rate based on inflation. So the value of I series bonds will keep up with inflation but EE bonds won’t if the inflation is high. But if inflation is low, your returns will be higher with the EE bonds.