When you were a little kid, you may remember getting a US Savings Bond in your birthday card from your grandparents or your aunts/uncles. While it didn’t seem to be an exciting gift at the time, there are some pretty interesting features about these bonds that you many not know…even as an adult.
I recently came across an article in Wealth Management, about some surprising features of US Series EE Savings Bonds that are really cool:
1. What Exactly are Series ‘EE’ Savings Bonds? – These bonds are direct obligations of the United States Treasury. They are available for purchase online at www.treasurydirect.gov, and fully mature after 30 years. The annual interest rate for Series EE savings bonds is currently a paltry 0.1 percent, which is in effect for the life of the bond. However, there is actually a hidden twist that can help you get a much better interest rate.
2. You can effectively double your money – Did you know, that the US Treasury Department guarantees that holders of Series EE savings bonds will double their initial investment, once the bonds have been held for at least 20 years? It’s true! That would work out to about a 3.5% annual yield, which compares very favorably to the 2.27% that the 20-year Treasury bond paid as of Oct. 28, 2016. But unlike the Treasury equivalent, holders of Series EE bonds have no risk of a market-induced loss. However, you have to make a commitment to not redeem before 20 years, otherwise you could end up with a lot less money (i.e. the dismal 0.1%).
3. Savings Bonds are Exempt from State Taxes – Like Treasury bills, Savings Bonds’ interest is exempt from state taxation. However, unlike Treasuries, bond holders can make a choice to either declare the interest (and pay taxes on the interest) as interest is earned each year, or wait until the bonds mature (or you redeem them early) and pay taxes on all of the interest accrued. Why is this important? Well it can mean a big difference in savings especially if you plan to use the bonds for a common purpose like retirement or college.
