Overview
Series EE bonds are savings bonds issued by the U.S. Department of the Treasury. They are low-risk investment vehicles designed to provide a safe, predictable return over a long period. These bonds are available in electronic form and earn a fixed interest rate throughout their life.
Key Features
- Fixed Interest Rate: Series EE bonds offer a fixed rate of interest over their entire term.
- Guaranteed Doubling: Bonds held for 20 years are guaranteed to double in value due to the U.S. Treasury’s make-up payments if necessary.
- Maximum Term: Though they mature in 20 years, they continue to earn interest for up to 30 years.
- Tax Benefits: Interest earned on Series EE bonds may be tax-exempt when used for qualifying education expenses.
Examples
- Educational Savings: Jane purchased $5,000 in Series EE bonds for her daughter’s college education. By the 20th year, these bonds are guaranteed to be worth at least $10,000, aiding in college expenses.
- Long-term Investment: Mark buys a $10,000 Series EE bond and holds it for 25 years. Over this period, he realizes a stable return given the bond’s fixed interest rate and government guarantee.
Frequently Asked Questions
How do I purchase Series EE bonds?
Series EE bonds can be bought through the U.S. Treasury’s website, TreasuryDirect.gov, or during tax season using your federal income tax refund.
What is the current interest rate for Series EE Bonds?
The current interest rate is set by the U.S. Department of the Treasury and may vary. You can check the current rate on TreasuryDirect.gov.
Are Series EE bonds exempt from state and local taxes?
Yes, interest earned on Series EE bonds is exempt from state and local taxes, though federal taxes do apply.
Can Series EE bond interest be used for education tax benefits?
Yes, if you meet income limits and use the interest to pay for qualified higher education expenses, you may be able to exclude it from federal income tax.
Related Terms
- Savings Bond: A government bond offered to the public that is typically low-risk with a fixed interest rate.
- Fixed Interest Rate: An interest rate that remains constant throughout the life of the bond.
- Education Savings Bond: Bonds whose interest earnings can be tax-free when used for education expenses.
- TreasuryDirect: The online platform to purchase and manage U.S. government securities.
Online References
Suggested Books for Further Studies
- Investing in Bonds For Dummies by Russell Wild
- The Bond Book by Annette Thau
- Bonds: The Unbeaten Path to Secure Investment Growth by Hildy Richelson and Stan Richelson
Fundamentals of Series EE Bond: Financial Planning Basics Quiz
### What is the primary feature of a Series EE bond?
- [ ] Variable interest rates
- [x] Fixed interest rates
- [ ] Zero interest rates
- [ ] Monthly dividend payouts
> **Explanation:** Series EE bonds offer a fixed interest rate throughout the life of the bond, making them predictably secure investment options.
### How long must you hold a Series EE bond for it to double in value?
- [ ] 10 years
- [x] 20 years
- [ ] 25 years
- [ ] 30 years
> **Explanation:** The U.S. Treasury guarantees that a Series EE bond will double in value if held for 20 years.
### Can the interest earned on Series EE bonds be tax-exempt for education expenses?
- [x] Yes, if used for qualifying education expenses
- [ ] No, it is always taxable
- [ ] Yes, but only if donated to a school
- [ ] No, it can only defer taxes, not exempt them
> **Explanation:** Interest earned on Series EE bonds can be tax-exempt when used to pay for qualifying higher education expenses.
### What happens to a Series EE bond after 30 years?
- [ ] It stops earning interest
- [x] It matures and can no longer earn interest
- [ ] It loses value gradually
- [ ] It is automatically reinvested into a new EE bond
> **Explanation:** A Series EE bond matures and stops earning interest after 30 years.
### Where can you purchase Series EE bonds?
- [x] TreasuryDirect.gov
- [ ] Banks and credit unions
- [ ] U.S. Postal Service
- [ ] Stock exchanges
> **Explanation:** Series EE bonds are purchased through TreasuryDirect.gov, the U.S. Treasurer's official site for direct bond transactions.
### Are Series EE bonds exempt from state and local taxes?
- [x] Yes
- [ ] No, they are fully taxable
- [ ] Only in specific states
- [ ] Only for holders over 65 years old
> **Explanation:** Interest earned on Series EE bonds is exempt from state and local taxes, but federal taxes do apply.
### What is the minimum purchase amount for a Series EE bond?
- [x] $25
- [ ] $50
- [ ] $500
- [ ] $1000
> **Explanation:** The minimum purchase amount for a Series EE bond on TreasuryDirect is $25.
### Can you sell a Series EE bond before it matures?
- [x] Yes, after a minimum holding period of one year
- [ ] No, you must hold it to maturity
- [ ] Yes, but only after 10 years
- [ ] Yes, but it incurs heavy penalties
> **Explanation:** Series EE bonds can be sold after a minimum holding period of one year, but selling before five years forfeits the last three months' interest.
### Which of the following is a characteristic of Series EE bonds?
- [x] Low-risk
- [ ] High-risk
- [ ] Variable return
- [ ] Tax penalties
> **Explanation:** Series EE bonds are considered low-risk investment options due to their fixed interest rate and government backing.
### How is interest on Series EE bonds compounded?
- [ ] Monthly
- [x] Semiannually
- [ ] Annually
- [ ] Quarterly
> **Explanation:** Interest on Series EE bonds is compounded semiannually, enhancing the growth potential over time.
Thank you for enriching your knowledge about Series EE Bonds and engaging with our quiz. Keep exploring more about safe and reliable investment opportunities!
