Definition
A Series EE Bond is a type of U.S. government savings bond issued by the Department of the Treasury. It is often used as a long-term investment, as they come with a maturity period of 20 years, and they guarantee to at least double in value over this initial period. The interest earned is exempt from state and local taxation, and federal taxes can be deferred until redemption or final maturity.
Key Takeaways
- Series EE Bonds are government savings bonds issued by the U.S. Department of the Treasury. They provide a low-risk form of investment with guaranteed return, hence a secure way for investors to grow savings over time.
- These bonds are purchased at half their face value and mature over a period of 20 years, with variable interest rates applied semi-annually based on market conditions. After 20 years, they’ll reach their face value through the accrual of interest.
- Interest earned on Series EE Bonds is exempt from state and local taxes. Federal taxes on the interest can be deferred until the bond is redeemed or reaches final maturity, providing potential tax benefits to investors.
Importance
The finance term “Series EE Bond” is vital because it refers to a type of U.S. savings bond, issued by the federal government, that plays a crucial role in small scale, non-market linked, fixed-income savings.
Series EE Bonds offer investors a safe, low-risk means to preserve money over the long-term, often for purposes such as education or retirement. These bonds, advantageous for their tax benefits, guaranteed doubling in value over the term, and backing by the U.S.
government, prove a dependable option for individuals looking to safeguard their money with a low-risk investment. They provide a steady, albeit not spectacular, return on investment while also contributing to the nation’s borrowings, making them an important aspect of both personal finance and national economy.
Explanation
The Series EE Bond is a type of U.S. government savings bond that offers reliable, low-risk investment growth. It’s designed for individual investors wishing to set aside money for the long term – typically for purposes such as financing education, supplementing retirement savings, or gifting.
These bonds earn a fixed rate of interest until maturity, and the interest is often exempt from state and local taxes. Series EE Bonds are typically used as a long-term savings tool, given that they reach maturity at 30 years. The primary advantage of these bonds is the guarantee that they will double in value from the initial purchase price over a 20-year initial maturity period.
This feature makes these bonds particularly appealing for those planning long-term financial goals. Coupled with the fact that they are backed by the U.S. government, Series EE bonds are considered a safe, albeit slow-growing, form of investment.
Examples of Series EE Bond
College Education Savings: Parents or grandparents can buy Series EE Bonds with the intention of funding a child’s college education in the future. As they don’t need to pay taxes on the interest if it’s used for education, this can be a tax-advantaged way to save for college.
Retirement Savings: An individual nearing retirement who wishes to secure a portion of their savings may opt to purchase Series EE Bonds. Here, the bond acts as a low-risk investment where the owner knows they will get back at least the money they put in, in addition to accrued interest, after a period of time.
Emergency Fund: A person may want to build an emergency fund for unforeseen expenses. They can buy Series EE bonds as part of this fund. The bonds will keep the money safe and slowly earn interest over time. Even though they can’t be cashed in within the first year of purchase and there’s an early withdrawal penalty if cashed in within 5 years, they provide a safer alternative compared to higher risk investment vehicles, and may be a suitable choice for long-term emergency planning.
Frequently Asked Questions about Series EE Bonds
What are Series EE Bonds?
Series EE bonds are a type of U.S. government savings bonds that are designed to help investors save in a way that’s safe and secure. They are often used as gifts or for educational purposes.
How do Series EE Bonds work?
When you buy a Series EE bond, you’re lending money to the U.S. government. In return, the government promises to pay you back with interest. The interest is added to the bond monthly and is paid when you cash the bond.
How much do Series EE Bonds cost?
Series EE bonds are sold at face value. This means that a $50 bond costs $50, a $100 bond costs $100, and so on. They can be bought in any amount from $25 to $10,000.
Are Series EE Bonds a good investment?
Whether or not Series EE bonds are a good investment depends on your individual circumstances. They are a very safe investment as they are backed by the U.S. government, but they offer a relatively low rate of return compared to other investments.
How do I cash in my Series EE Bonds?
Series EE bonds can be cashed in through financial institutions or through the Treasury’s online system TreasuryDirect. Keep in mind, if you cash a bond within the first five years, you’ll lose the last three months of interest.
Related Entrepreneurship Terms
- Face Value
- Interest Rate
- Maturity Date
- Patriot Bond
- Denomination
