Savings Bonds

CROWD IN FRONT OF THE NEW YORK STOCK EXCHANGE

CROWD IN FRONT OF THE NEW YORK STOCK EXCHANGE

Savings bonds are loans American citizens make to the government. There are two types of savings bonds: the Series EE U.S. Savings Bonds  (or Series EE Bonds) and the I Savings Bonds. Both types of bonds are low-risk investments that pay interest for up to 30 years. The U.S. Treasury stopped issuing paper savings bonds – you merely register to buy the securities at the website, www.treasurydirect.gov. Like any other investment, you will need your parent or guardian to open up a custodial account in your name if you are a minor.

The way Series EE Bonds work is that you are promised a certain fixed interest rate over a 30-year period. The U.S. Treasury announces the interest rates for new Series EE Bonds each year on May 1 and November 1. At the time of this writing, the interest rate you would earn on a Series EE Bond is a measly 0.10% per year. You have to invest at least $25 in a Series EE Bond, but you cannot invest more than $10,000 in each calendar year. You can only cash in the bond after one year or more. However, if you cash in the bond before 5 years, you will lose some interest. When you cash in the bond or it matures, you will get the accumulated interest minus penalties for early redemptions, if any. 

The I Savings Bonds are similar to the Series EE Bonds with one important distinction: the Series I Bond interest rate is adjusted periodically based on the inflation rate. Specifically, the interest rate is based on a formula, which adds a fixed interest rate, and a rate related to the CPI-U inflation rate. At the time of this writing, the annual interest rate you would earn in the I Savings Bonds is 1.64%.