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  • EE savings bonds

    Thru treasurydirect.com you can buy EE savings bonds and your money doubles every 20 years. Better than CD's. Interest rate is about 3.5 percent with zero risk. Have to hold the 20 years. No tax benefits from what I can gather. Anyone else doing this, seems like a way to build a lattered annuity with zero cost and risk.

  • #2
    I use them as a third of my emergency fund. They don't completely replace CDs since you can't access the money at all for the first year. After that they act like CDs with a three month interest penalty until the five year mark.

     

    As long as you have enough money outside the funds that you won't need the money during the next year, they're great. I have taken to building a mixed EE and I fund (some inflation protection in case it jumps up) slowly. Once a significant portion is past the five year mark, I don't see much value in CDs.

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    • #3
      I don't know where you got the 3.5% interest rate from.  Current interest rate on EE bonds is 0.1 %.

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      • #4
        I have some inherited from the 90s with a 4% rate that I'm waiting to cash out in a couple years. After that the interest rates plummeted.

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        • #5
          The 3.5% rate comes in because they are guaranteed to double in 20 years.  If the annual rates have been below 3.5%, the treasury will kick in the rest after year 20 to double your initial investment.  I believe taxes are also deferred until you withdraw and there are no state or local taxes on the interest.

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          • #6
            You have to hold them for the full 20 years to get the 3.5

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            • #7
              I looked at the Treasury website and saw nothing promising that your money would double in 20 years.  Older EE bonds had fluctuating interest rates.  Current bonds have an interest rate fixed at the time of sale, currently 0.1%.  The interest is paid for as long as 30 years.

              If you have a reference or link which indicates that there's a guaranteed doubling at 20 years I would be grateful if you would show that to me.

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              • #8
                The money doubling in 20 years is actually correct but you will not see this rate advertised anywhere on the Treasury Department’s website. There are also limitations as to how much of them that you can purchase in any given year.

                http://www.forbes.com/sites/marcprosser/2012/03/22/how-to-earn-3-5-on-a-us-savings-bond-2/#1ae2b2257416

                https://www.bogleheads.org/wiki/EE_savings_bonds

                 
                Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF
                www.physicianfinancialservices.com

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                • #9
                  This page states the doubling: http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eeratesandterms_eebondsissued052005and afer.htm

                   

                  Excerpt of interest:

                  "You bought a paper EE Bond at half its face value. For example, you paid $50 for a $100 paper EE Bond.

                  The bond starts to earn interest on what you paid (not on its face value). Over time, with interest compounded every six months, the bond gets closer and closer to its face value.

                  Treasury guarantees that an EE Bond will be worth at least its face value after the first 20 years. If an EE Bond does not double in value (reach its face value) as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20 year anniversary of the bond's issue date to make up the difference."

                   

                   

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                  • #10
                    "“You bought a paper EE Bond at half its face value. For example, you paid $50 for a $100 paper EE Bond"

                     

                    That refers to paper bonds only, but the website also states that they no longer issue paper bonds.  Based on that, I'm assuming that the guaranteed doubling no longer applies.  I would love to be proven wrong.

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                    • #11
                      From the treasury direct website under the FAQs:

                      Electronic bonds are sold at face value (not half of face value). They start to earn interest right away on the full face value. Treasury guarantees that for an electronic EE Bond with a June 2003 or later issue date, after 20 years, the redemption (cash-in) value will be at least twice the purchase price of the bond.  If the redemption (cash-in) value is not at least twice the purchase price of the electronic bond as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20 year anniversary of the bond's issue date to make up the difference.

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                      • #12
                        Weird, they don't advertise that fact at all! Good to know - I'll definitely hold on to those few bonds I have that are under 20 years!

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                        • #13
                          Awesome!




                          From the treasury direct website under the FAQs:

                          Electronic bonds are sold at face value (not half of face value). They start to earn interest right away on the full face value. Treasury guarantees that for an electronic EE Bond with a June 2003 or later issue date, after 20 years, the redemption (cash-in) value will be at least twice the purchase price of the bond.  If the redemption (cash-in) value is not at least twice the purchase price of the electronic bond as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20 year anniversary of the bond’s issue date to make up the difference.
                          Click to expand...


                          Thanks so much for that, and thanks to all.  I looked at the FAQs but missed that part.

                          That looks like a pretty decent return, given that they pay more than 20 or 30 year bonds are yielding right now.  Where I live, for me that's equal to a taxable return of 3.85%.   Thanks for the tip!  I learned something new today.  It's limited to $10,000 per year per social security number, but 20 years is a long time to tie up money, so I'm not sure how much more money one would want to tie up for 20 years anyway.

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                          • #14
                            Thank you for the reminder.  I've got three of these $100 savings bonds from the 80's and early 90's at home collecting dust.

                            I'll be taking them to the bank and cashing in. Drinks on me tonight!  

                            Cheers!

                            -PoF

                             

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                            • #15
                              These still confuse me when looking at my fixed income portion of investing. At first it seemed like a no brainier. 3.5% return and no state or local tax if held for 20 years is hard to beat with muni bonds or bonds in general especially if you are in the top tax bracket. I was planning on doing them for the next 20 years as a self annuity but talked myself out of it. Still not sure why more top income earners don't use these, but that is what makes me nervous.

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