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How Do Savings Bonds Work? Ultimate Guide

There are currently 2 types of U.S. savings bonds that can be purchased electronically. Series EE and Series I bonds are no longer available to purchase in paper form, unless you’re using your tax refund to buy up to $5,000 of paper Series I bonds

Let’s look at these 2 options and their characteristics:

Series EE U.S. Savings Bond

The Series EE savings bond took the place of the Series E bond in 1980. These bonds are sold at face value and are worth their full value when cashed in after they have matured. Series EE bonds pay either a fixed or variable rate, depending on when they were issued. Series EE bonds issued after May 2005 earn a fixed rate of interest for the first 20 years, which is paid at maturity or redemption. You’re almost guaranteed that a Series EE bond will double in principal if you hold the bond for at least 20 years. 

Series I U.S. Savings Bond

The Series I savings bond was introduced in 1998, and it comes with a combined fixed interest rate that accrues for up to 30 years and already takes inflation into account. If inflation increases, the interest rate on the savings bond will be adjusted. Similar to the Series EE bond, the Series I bond is sold at face value. When you cash in a Series I bond, you’ll receive the face value and the accumulated interest.

Series EE vs Series I: Which one is best for you

If you’re wondering what savings bond to choose, here’s a closer look at the main difference between the 2 types. Series EE bonds have a fixed rate of return, while Series I bonds come with both a fixed rate and an adjustable rate. Because of this, if you’re looking to cash your bonds out after a few years, a Series I bond will usually promise a better return, as Series EE bonds carry a lower interest rate until they reach their full maturity. 

Series EE bonds offer a guaranteed 3.5% annual return over 20 years when allowed to mature to face value. Series I bonds offer an opportunity to grow interest faster than other guaranteed investments due to market fluctuations. Choosing the right type of savings bond for you is dependent on what you’re looking for in an investment and what works best for your financial plan or situation. 



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