If you're considering investments in savings bonds, it's wise to have an understanding of 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 is 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 in digital form only. 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. The interest earnings on an EE bond depends on when they were originally purchased. Fixed rates were set for bonds issued in May of 2005 through the present. The bonds issued from May of 1997 through April of 2005 were sold with variable interest rates. The maximum amount that you can buy is up to $10,000. The interest in EE savings bonds is earned monthly and compounded semiannually for 30 years. The maturity date of EE savings bonds is 20 years. You may cash these bonds at any time after 12 months from the date of purchase. If you cash them in during the first five years you will lose three months of interest as a penalty. This means that if you cash an EE bond in after 18 months, you only get 15 months of interest.
What is an I Series savings bond?
I bonds are securities sold by the US Department of the Treasury. They may be purchased in paper and you are allowed to buy them at face value with your IRS tax refund. A $50 bond is priced at a face value of $50. They also come in digital form. The minimum face value is $25. You may buy them in any amount. I bonds accrue interest at a fixed rate with an inflation rate calculated twice a year. The bond accrues interest monthly, compounded semiannually until the bond reaches maturity at 20 years. You may redeem the bond after 12 months from the date of purchase. If you cash it in 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 the I bonds are available in electronic form or printed paper bonds. You can no longer purchase Series EE savings bonds in paper form. You can purchase up to $5,000 in Series I savings bonds with your tax return in paper form. This limitation does not exist for the electronic I or the Series EE.
According to The Nest, Series EE bonds come with a variable interest rate. Series I bonds have a fixed rate. The Series I bonds are streamlined with a predictable yield structure. The interest rate is set twice every year for six months. The bonds maintain that interest rate until it is redeemed. There is an inflation guard built into the yield structure that allows for changes in the interest rate at the six-month intervals, associated with the Consumer Price Index. The rate can never stop at zero or fall into the negative. This system preserves the earning potential of I bonds.
Series EE bonds belong to a new system of electronic issuance that sets the face value automatically at the time that the bond is issued. A flexible tool of adjustment makes the bond more flexible during times when the interest rate fluctuates. The differences between the two savings bond types are slight. Investments in Series EE savings bonds guarantee an annual return of 3.5 percent of a period of 20 years when the bond will mature to its full face value. It can be held over to draw interest for an additional 10 years. At the 30 year mark, it stops accruing interest. The ideal time to cash in an EE bond is at year 30.
According to Investopedia, Series EE bonds are guaranteed to double in the face value at the time of its 20-year maturity. It will further yield interest if allowed to reach year 30 with a fixed interest rate of return. Series I bonds have no guarantee of value at the time of maturity. They carry a fixed rate plus an adjustable interest rate that is based on inflation.
Which is better?
Series I savings bonds grow in interest at a faster rate than many other guaranteed investments during typical economic cycles. According to the Journal of Accountancy, electronic bonds can be purchased at a maximum of $60,000 face value per year and paper bonds at a maximum of $30,000 per year. Some investors prefer Series EE savings bonds because of the guarantee that they will reach their maturity at face value in 20 years with an annual rate of just over 3.5% with compounding semi-annually. They will double the amount that the investor pays for them during this period. The owner of the bonds may opt to continue to allow interest to accrue for an additional 10 years and cash them out at year 30 for the maximum return on investment. Series I savings bonds do not offer this guarantee.
Final thoughts
There are more similarities among EE and I savings bonds than there are differences. Between the two types of savings bonds, EE and I Series, one is not better than the other, but there are slight differences in the interest rates and the available formats. It's always wise to consult with your financial advisor before deciding which investment is the best option for your portfolio.
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FAQs
I bonds offer an inflation-protected return, ensuring your savings keep pace with rising costs. EE bonds, on the other hand, provide a fixed-interest rate for the life of the bond, offering a predictable return.
What is the downside to an I Bond? ›
The initial yield is only good for the first six months you own the bond. After that, the investment acts like any other variable vehicle, meaning rates could go down and you have no control over it. And if you wait until, say, 2025 to buy an I bond, the initial rate could be well below current levels.
Is it better to buy EE bonds or I bonds? ›
The interest rate on I bonds is adjusted every six months depending on inflation. With TIPS, it's the principal that's adjusted. Either way, both are hedges against inflation. In contrast, an EE bond has a fixed interest rate that's determined at the time you buy it.
Why would anyone buy EE bonds? ›
Series EE savings bonds are a low-risk way to save money. They earn interest regularly for 30 years (or until you cash them if you do that before 30 years). For EE bonds you buy now, we guarantee that the bond will double in value in 20 years, even if we have to add money at 20 years to make that happen.
How much is a $100 EE savings bond worth after 30 years? ›
How to get the most value from your savings bonds
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
Can I buy $10,000 I bond every year? ›
That said, there is a $10,000 limit each year for purchasing them. There are several ways around this limit, though, including using your tax refund, having your spouse purchase bonds as well and using a separate legal entity like a trust.
Do you pay taxes on I bonds? ›
How much tax do I owe on my I bonds? Interest on I bonds is exempt from state and local taxes but taxed at the federal level at ordinary income-tax rates.
Do EE bonds really double in 20 years? ›
EE bonds you buy now have a fixed interest rate that you know when you buy the bond. That rate remains the same for at least the first 20 years. It may change after that for the last 10 of its 30 years. We guarantee that the value of your new EE bond at 20 years will be double what you paid for it.
Which is better, series I or EE? ›
Bottom line. I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.
Bottom line. If inflation and investment safety are your chief concerns — TIPS and I-bonds deliver both. TIPS offer greater liquidity and the higher yearly limit allows you to stash far more cash in TIPS than I-bonds. If you're saving for education, I-bonds may be the way to go.
How long does it take for a $100 EE savings bond to mature? ›
All Series EE bonds reach final maturity 30 years from issue. Series EE savings bonds purchased from May 1995 through April 1997 increase in value every six months.
What are the disadvantages of TreasuryDirect? ›
Securities purchased through TreasuryDirect cannot be sold in the secondary market before they mature. This lack of liquidity could be a disadvantage for investors who may need to access their investment capital before the securities' maturity.
How much is a $50 Patriot bond worth after 20 years? ›
After 20 years, the Patriot Bond is guaranteed to be worth at least face value. So a $50 Patriot Bond, which was bought for $25, will be worth at least $50 after 20 years. It can continue to accrue interest for as many as 10 more years after that.
When should I cash in EE savings bonds? ›
You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
Is there a penalty for not cashing EE bonds after 30 years? ›
While the Treasury will not penalize you for holding a U.S. Savings Bond past its date of maturity, the Internal Revenue Service will. Interest accumulated over the life of a U.S. Savings Bond must be reported on your 1040 form for the tax year in which you redeem the bond or it reaches final maturity.
Why should I not buy an IBond? ›
A second interest component is based on inflation rates, and it resets every six months. Unfortunately, both elements of the I bond rate could fall in the coming year. Economists expect the consumer-price index, or CPI, already down to 3.1% from its June 2022 high of 9.1%, to fall to 2.4% by the end of 2024.
Is there anything better than I bonds? ›
Bottom line. If inflation and investment safety are your chief concerns — TIPS and I-bonds deliver both. TIPS offer greater liquidity and the higher yearly limit allows you to stash far more cash in TIPS than I-bonds. If you're saving for education, I-bonds may be the way to go.
How long should you keep money in an I bond? ›
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest. See Cash in (redeem) an EE or I savings bond.
How risky are I bonds? ›
A series I bond is a non-marketable, interest-bearing U.S. government savings bond. Series I bonds give investors a return plus inflation protection on their purchasing power and are considered a low-risk investment.
