The Secret of Series EE Savings Bonds

by Craig Moser on August 4, 2017

Most people look for some level of safety, liquidity and yield in their portfolios.  Finding one investment with all three benefits is difficult.  Despite that, it is possible to get a safe bond with a great interest rate, and even some tax advantages.  You just have to wait to claim your payoff.  To help you decide wheter  a bond is a suitable option for your investment goals, here’s a quick review.

Series EE savings bonds from the United States Treasury are available for purchase online at  They mature in 30 years, and the annual interest rate is 0.1 percent.  At first glance they may not seem very appealing.  However, there is a twist with the potential to substantially increase their interest rate.

How to Double Your Investment

If you hold a Series EE savings bond for at 20 years, the U.S. Treasury guarantees it will double your initial investment.  If you do the math, that works out to an annual return of about 3.5 percent.  Considering the 20-year Treasury bond paid 2.27 percent (as of October, 2016), the Series EE bond, with a 3.5 percent return after 20 years, is a much better rate.  It’s also important to note the Series EE bond doesn’t carry the risk of market-induced loss.

Early Withdrawal

It can be difficult to redeem Series EE savings bonds during the first year of ownership.  In addition, after five years, there is a penalty of three months’ interest for withdrawal.  However, after five years, you can redeem the bond without penalty.  Unfortunately, you will only earn about 0.1 percent return.


Unlike Treasury securities, Series EE bonds have features which make them the preferred option for college or retirement savings.  Interest earned on both are exempt from state taxes, but you pay federal taxes on Series EE bonds yearly, or at maturity (or when redeemed.)  It's your choice.



If you are currently working and putting the maximum amount possible in your 401Ks, IRAs and Roth IRAs and still have investable assets available, you may consider purchasing Series EE savings bonds.  From a short-term view, you would receive yields equivalent to rates currently paid on money market accounts, plus you gain maximum liquidity and safety.

Holding the bond for two decades will give you a 100 percent return on your initial investment, and you can cash the bond with no penalty to spend or invest any way you want.  If you elected to pay taxes at withdrawal, you will be responsible for that amount.  (As a bonus, you'll probably be in a lower tax bracket if you cash the bond after you retire.)


If you have a newborn child, the Series EE money-doubling trick could be a useful tool to save for higher education expenses.  As an example, assume you have a newborn and invest $10,000 in Series EE savings bonds today, and put the bond in that newborn’s name.  Next, you defer taxes on earned interest until the bonds mature or are redeemed.  20 years later, the bond is worth $20,000.  In addition, if redeemed to pay for higher education within the same calendar year, the earned interest could be tax-free (provided your income in that year is below the limit specified for that year.)

During 2016, the full exclusion is only for married couples filing jointly with less than $115,751 ($77,200 for single) adjusted gross income, and unavailable at $145,750 adjusted gross income for couples ($92,000 for single.)  These fingures are adjusted each year for inflation and will be different 20 years from now.

Unfortunately grandparents aren’t eligible to use this interest exemption for savings bonds proceeds, unless the grandchild is a dependent.

A Gift

If you want to give a Series EE savings bond as a gift, you can purchase it with the name and social security number of the recipient.  Another option is to purchase the bond in your name and transfer it to the recipient later.  The U.S. Treasury website offers a gift certificate that can be customized and printed you can give to the recipient.


Despite the benefits of Series EE savings bonds, there are a couple of considerations you need to be aware of:

  • You can't purchase bonds in tax-sheltered accounts like IRAs or Roth IRAs.
  • The maximum annual amount of bonds any one person can purchase per calendar year is $10,000.
  • The initial process of purchasing Series EE savings bonds requires you to open an account, make the purchase, and initiate transfer of funds. This could take a few hours for your first purchase, but future purchases will be quicker and easier.

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