Home Investing The Benefits of Series EE Savings Bonds

The Benefits of Series EE Savings Bonds

The Benefits of Series EE Savings Bonds
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Imagine the feeling of finding a $20 bill in a coat pocket you haven’t worn since last winter. It’s like a surprise gift from your past self. Now think of that surprise growing over time, turning that one bill into a stack of cash. That’s the magic of Series EE savings bonds. These bonds are issued by the U.S. Treasury and are like reliable workhorses in the world of investments. They’re not flashy or risky. Instead, they offer slow and steady growth that you can count on.

Series EE bonds are a bit like planting a small tree today and knowing it will become a strong, sturdy tree that can handle storms and give you shade when you need it. But how do these bonds actually work? And do they fit into your financial plans? As we take a closer look at these bonds, we’ll also see how they can balance out your investment mix.

Getting to Know Series EE Bonds: The Basics

Think of Series EE bonds as a way the government helps people save money in a safe and low-risk manner. James Allen, a financial expert, explains that these bonds are a bit like giving a loan to the government, and in return, the government pays you back with some extra money over time.

These bonds earn interest regularly for 30 years, or until you decide to cash them in. From May 1 to October 31, the current interest rate is 2.50%. But if you hold onto an EE bond for 20 years, it’s guaranteed to double in value, no matter what the interest rate is at that time.

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Here’s the deal: You’re lending some of your money to the government, and they’re not only paying it back but also giving you a little extra for your trust. This is the heart of Series EE bonds, offering you a safe and dependable way to grow your savings.

Buying Series EE Bonds: How It Works

Getting your hands on EE bonds is a digital affair now. It’s as simple as clicking a few buttons:

  1. Log into your TreasuryDirect account. If you don’t have one, setting it up is easy and quick.
  2. Click on “BuyDirect.”
  3. Choose EE bonds over I bonds and hit “Submit.”
  4. Follow the steps to give your information.

Here’s the exciting part. You can buy an electronic EE bond for as little as $25, and you can go up to $10,000, choosing the exact amount you want.

Remember: There’s a limit on how much you can buy. You can invest up to $10,000 in EE bonds each year. So, while the chance to invest is good, it’s not unlimited.

Cashing In Your EE Bonds: Turning Them into Money

Knowing how to cash in your EE bonds is just as important as knowing how to buy them. After all, an investment’s true value comes out when you can use the money. Let’s walk through the steps of changing your EE bonds into cash.

You can cash your EE bonds after owning them for a year. But, like fine wine, these bonds get better with time. The longer you hold onto them, the more they’ll grow—up to 30 years.

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Just a heads-up: If you decide to cash in an EE bond before five years, you’ll lose the last three months of interest. So, these bonds are best for those of us who are thinking about saving for the long haul.

Before you turn your EE bonds into cash, you can find out how much they’re worth by checking your TreasuryDirect account under “Current Holdings.” You’re free to cash in any amount that’s $25 or more, down to the exact cents. But if you’re only cashing in part of a bond, you need to leave at least $25 in your account.

When you’re ready to cash in your electronic EE bonds:

  1. Log into your TreasuryDirect account.
  2. Go to “ManageDirect.”
  3. Click the link for cashing securities.

Tackling Taxes: How EE Bonds Are Taxed

The interest your EE bonds earn is subject to federal income tax. You don’t have to worry about state or local taxes. So, you only need to account for it when you’re doing your federal tax return.

When it comes to reporting the interest for taxes, you’ve got two choices:

  1. Deferred Interest Reporting: You can wait to report the interest until you actually get it—when you cash in the bonds or when they reach maturity. You’ll get a Form 1099-INT for the year you get the interest.
  2. Annual Interest Reporting: You can report the interest your EE bonds earn every year. You won’t get a Form 1099-INT each year, so you’ll need to keep track of the interest yourself.
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Which option you pick depends on your tax situation. It might be helpful to talk to a tax expert to figure out what works best for you.

Are Series EE Bonds a Good Choice?

Whether Series EE bonds are a smart investment depends on your own financial situation, goals, and how comfortable you are with risk.

James Allen compares the value of EE bonds to the value of art—it’s a matter of personal perspective. He explains, “For some people, the security and promise of doubling their money at the end make these bonds a precious part of their investment collection. Others might not be as interested due to the longer time it takes to grow and the moderate returns. It’s like deciding between a slow-cooked meal and a quick microwave dish. Both get the job done, but the time and taste are different.”

If you’re looking for a safe place to invest for the long run, where your money is safe and growth is steady, then EE bonds could be your cup of tea. They shine in their low-risk nature, reliable returns, and tax perks.

But if quick access to your investment, higher returns, or flexibility are what you want, EE bonds might not be the best fit. They need a patient approach to reach their full potential, and cashing them in too early could cost you.

Just like any investment decision, it’s wise to explore your options and chat with a financial expert before making a choice. Your unique circumstances should guide your decision-making.