Series EE Savings Bonds: When to Redeem For the Maximum Return

Series EE savings bonds are a low-risk investment.

In fact:

These are one of the safest investments because they’re fully backed by the U.S. government.

Since there’s a guaranteed return, many view EE savings bonds as a reliable long-term investment.

That's why:

Savings bonds are commonly given to children as gifts by their parents and grandparents. And some people purchase savings bonds to be used for future higher education costs.

But while safe, savings bonds can have a low rate of return, plus it takes decades for the bonds to fully mature.

Learn more about Series EE savings bonds and then decide whether this is the right investment for you -- including when to cash it out for the most money.

What is a Series EE Savings Bond?

A Series EE bond is a government-backed savings instrument that pays a fixed rate of interest like many savings accounts.

These products are considered low-risk like a certificate of deposit (CD).

The difference, however, is that while some CDs mature in as little as six months, series EE bonds don’t fully mature until 30 years, and they only earn interest up to 30 years.

Therefore, any EE savings bonds purchased in 1989 will stop earning interest in 2019.

Interestingly:

Although it takes three decades for a bond to mature, the U.S. Treasury Department guarantees that they will double in value after 20 years -- actually, a bond could double its value sooner.

(Using the 20-year target, you'd need an average 3.53% annual return on an investment to double your money.)

The minimum purchase price for a Series EE savings bond is $25, with the maximum purchase capping at $10,000.

If you purchase an EE savings bond in a large denomination and keep it until maturity, it can be an excellent way to invest and save for the future.

In addition to giving as a gift or using EE savings bonds to finance a child’s education, you can also use these bonds to supplement your retirement income.

Where to Buy a Series EE Savings Bonds?

In the past, you could purchase paper bonds from just about any credit union or bank.

This is no longer possible as of January 1, 2012.

If you want to buy a Series EE savings bond today, you must buy an electronic EE bond through the Treasury Department at TreasuryDirect.gov.

Before purchasing, you must first set up a Treasury Direct account.

Are you buying a savings bond for your minor child? If so, they can’t open an account, but you can open one for them and link it to your account.

If you’re giving an EE savings bond as a gift, the recipient must have a valid Treasury Direct account, too. If they don’t have an account, you can store the gift in your account’s Gift Box until they open one.

Now:

Be mindful that electronic bonds purchased through Treasury Direct are sold at face value. This is different from old paper bonds which were sold at half their face value.

Today, if you pay $1,000, you’ll receive a $1,000 savings bond.

When to Cash a Series EE Savings Bond?

Compared to a CD, a savings bond can offer more flexibility and liquidity.

Even though series EE bonds don’t reach full maturity until 30 years, you don’t have to wait this long to cash in the bond.

As a matter of fact:

You can redeem the bond after only one year of ownership. So while a savings bond does tie up your money, it doesn’t tie it up for a long period.

Early redemption

You may have to pay an early redemption penalty, depending on when you decide to cash it.

If you cash a savings bond before five years, you’ll forfeit three months of earned interest.

The exception:

The Treasury waives the one-year rule if you experience a disaster and need to tap your cash sooner.

There’s no penalty for cashing in the bond after five years.

Ideally, you want to keep the bond for as long as possible so that it’ll be worth more. Still, there’s comfort in knowing that you can cash a bond after 12 months in the event of a hardship.

Cashing out

Once you’re ready to cash a bond, log into your Treasury Direct account. Follow the directions and select the amount to cash in.

The money will appear in your checking or savings account in about two business days. When cashing a bond, you’re allowed to cash all of it, or only a portion. If you cash a portion, you must leave at least $25 in your account.

Be aware that while the interest you earn on an EE savings bond isn’t subject to state or local tax, it is subject to federal income tax.

You can pay taxes on the interest earned annually, or wait until you cash the bond.

What If a Savings Bond No Longer Earns Interest?

What’s interesting about series EE savings bonds is that you don’t have to cash the bond once it reaches maturity.

Just know that once the bond reaches full maturity, it stops earning interest and its value freezes.

Some people cash the bond at this time and put the money to good use.

Others, however, hold onto the savings bond to keep the cash inaccessible. This way, they don’t spend the proceeds frivolously.

This is an option. But rather than keep a savings bond that’s no longer earning interest, consider other alternatives.

For example, it might make more sense to cash the bond and invest it elsewhere. Maybe put the proceeds in an online high-yield savings account or an online high-yield certificate of deposit.

There’s even the option of rolling a matured U.S. savings bond into a 529 college savings plan for future education expenses.

Or, use the proceeds from a matured savings bond to buy another treasury bond.

How to Calculate the Value of a Series EE Savings Bond

If your Series EE savings bond hasn’t reached maturity yet, but you’re thinking of cashing it, first use the savings bond calculator on Treasury Direct to determine the bond’s current value.

Calculating a bond’s worth is pretty straightforward.

  • Begin by clicking the “Get Started” link on the savings bond calculator page.
  • Select the type of bond, the denomination of the bond, the issue date printed on the bond, and the bond’s serial number.
  • Hit “Calculate” to find its value.

Depending on the bond’s worth, you can either decide to keep the bond, or cash it and take your proceeds.

Final Word

Having a diversified investment portfolio can increase the likelihood that your money will grow steadily without too much risk.

If you have a regular savings account and a retirement account, but you’re looking to add other savings vehicles, consider a Series EE savings bond.

It is a reliable, safe investment, and you’re guaranteed to double your money in 20 years.

If you don’t think a savings bond is right for you, consider other safe solutions.

These include a certificate of deposit, a money market account, or perhaps an online high-yield savings account.

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