Electronic Series EE Bonds are sold at face value and are worth their full value when available for redemption. The minimum term of ownership is one year, but a penalty is imposed if the bond is redeemed in the first five years. The bonds earn interest for 30 years. Instead, the accrued interest is reflected in the redemption value of the bond. Treasury issues tables showing the redemption values.
If an election is made, all previously accrued but untaxed interest is also reported in the election year. If the election to report the interest annually is made, it will apply to all savings bonds for all future years.
That is, the election cannot be made on a bond-by-bond or year-by-year basis. Using the money for higher education may keep you from paying federal income tax on your interest. The gift recipient must open or already have a TreasuryDirect account in order for you to be able to transfer the bond to that person. If the recipient is a minor, a parent must open a TreasuryDirect account and establish a Minor Linked account. You will deliver the gift bond to the Minor Linked account. However, if the recipient has not opened a TreasuryDirect account, you may hold an EE or I bond that you purchased as a gift until it reaches maturity.
I bonds are great gifts for all occasions. Using your tax refund, a paper I bond can be sent to you so you can present it personally to the recipient. When you buy the I bond, download a gift certificate. The word "gift" won't appear on the I bond. If you're buying an I bond for a gift and you don't have the Social Security Number of the person you're buying the bond for, simply use your number.
Even though your number will be printed on the bond, you'll incur no tax liability, and it won't count towards your annual purchase limit. The Social Security Number is used for tracking purposes only, such as in cases where the savings bond is lost, stolen, or destroyed. You'll need to complete FS Form download or order.
If you own electronic I bonds, you can redeem them in the TreasuryDirect application. If you own paper I bonds, you can cash them at some local financial institutions or by mail. You can cash your Series I bonds any time after 12 months. You receive the original purchase price plus interest earnings. I bonds are meant to be longer-term investments; if you redeem an I bond within the first 5 years, you'll lose your last 3 months interest. For example, if you redeem an I bond after 18 months, you'll receive the first 15 months of interest.
No, but you can cash the EE or E bonds and use the proceeds to buy I bonds. The interest earned on the EE or E bonds must be reported on your Federal income tax return for the year in which they were cashed. This special I bond designation was to encourage continued public support for recovery efforts in the region severely damaged by hurricanes. The Gulf Opportunity Zone Act of contained a provision encouraging Treasury to make this designation.
Savings bonds are sometimes sold as souvenirs or collectors' items. The sale doesn't affect the ownership of the savings bond, since by regulation, a savings bond is a registered security and ownership is non-transferable.
The United States Treasury still has a contractual relationship with the owner or co-owners named on the bond, not the person who bought the bond at auction. Because of this, the person buying it at auction can't cash it--he's just purchased a piece of paper showing a bond that still is the property of the owner or co-owners named on the bond.
In some cases, the bond may be the property of the United States Treasury, if it's a bond that was lost and has since been replaced. Any security offered by the U. Treasury has nearly zero risk of default, and, as noted above, I bonds offer attractive tax benefits.
Their interest payments, for instance, are exempt from state and local taxes, and they may be entirely tax free if used to pay for college tuition and fees at an eligible institution.
For example, the composite rate for I bonds issued from May through October is 3. The U. Treasury currently offers two types of savings bonds, series I bonds and series EE bonds.
Whether you might prefer one over the other depends upon both the current interest rates and where you believe interest rates and inflation will trend in the future.
Scudillo suggests that investors should consider that series EE bonds are guaranteed to double over 20 years and I bonds offer no similar payout guarantee. If interest rates and inflation remain low, then EE bonds, with their guarantee to double in 20 years would perhaps be best.
Given lower trending inflation rates over the last couple of decades it would take longer to double your money. However, should inflation increase substantially, then I bonds holders would win out. Unfortunately, the only way to tell which bond earns more over time is in hindsight. You can buy I bonds electronically online at the TreasuryDirect website.
There is no secondary market for trading I bonds, meaning you cannot resell them; you must cash them out directly with the U. Electronic I bonds can be redeemed via the TreasuryDirect website.
Paper bonds can be cashed in at a local bank. I bonds are an excellent choice for conservative investors seeking a guaranteed investment to protect their cash from inflation. Although illiquid for one year, after that period you can cash them at any time. The three-month interest rate penalty for bonds cashed within the first five years is minimal in light of the fact that they preserve your initial purchase amount and you would find similar penalties for early withdrawals from other safe investments.
I bonds are appropriate for the cash and fixed portion of most investment portfolios. Today, the I bond returns handily beat those of certificates of deposit CDs. Parents might also consider accumulating I bonds to assist with future college payments. Barbara A.
She helps other learn about personal finance and investing at barbarafriedbergpersonalfinance. Her Encyclopedia of Personal Finance is a teaching tool for financial literacy. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree. Select Region. United States. United Kingdom.
Barbara Friedberg, Benjamin Curry. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
Understanding I Bonds I bonds are safe investments issued by the U.
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