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United States Savings Bonds 

The U.S. Treasury offers Savings bonds as safe, government-backed investments. Besides appreciation through compounded interest, Savings bonds may also provide tax benefits, when used to pay higher education, college tuition expenses.  There are two types of Savings bonds available to individual investors, the Series EE Savings Bond and the Series I Savings Bond.  The two are similar to one another, but there are differences in the interest earnings they provide.  These Savings bonds can be issued as a paper instrument and/or be issued electronically.

Tax Benefits For U.S. Savings Bonds 

The interest earned from Savings Bonds is exempt from state and local income tax.  Remember to check additional online resources for further tax benefits. 

If a specific list of IRS rules is satisfied, a Savings Bond can be redeemed on a federal, tax-free basis, for qualified education expenses.  Qualified education expenses include higher education college tuition and fees required to enroll at, or attend, an eligible education institution.  Other higher education contributions include a qualified college tuition program (that is, 529 Plan), or contributions to a Coverdell ESA.  Room and board or courses involving sports, games, or hobbies that are not part of a degree or certificate granting program are NOT considered qualified education expenses. 

The IRS defines an “eligible educational institution” as any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program, administered by the U.S. Department of Education. 

The qualified education expenses may also be reduced if you are receiving additional tax-free benefits, or have an adjusted gross income greater than defined thresholds.  See the IRS publication 970 for all specific details.

Investment Limits 

Your investment must be at least $25.  Electronic investments may be in any amount, in increments of one penny.  However, paper investments must be in one of the following eight denominations: $50, $75, $100, $200, $500, $1,000, $5,000, or $10,000. 

The maximum investment for each Social Security Number (SSN) type is $30,000 for each form of investment.  In other words, a total of $120,000 can be placed into United States Savings Bonds, for a single SSN, by placing $30,000 in each of the following:

• Electronic Series EE
• Paper Series EE
• Electronic Series I
• Paper Series I

Interest Rate For Bonds 

The money grows over a defined thirty-year time period, starting on the issue date, with compounding occurring semiannually.

Series EE Savings Bonds 

A Series EE Savings Bond is issued at a Series EE rate of return, which remains fixed throughout its existence.  The specific Series EE interest rate is determined twice a year, on May 1 and on November 1.

Series I Savings Bonds 

A Series I Savings Bond is issued at a Series I rate of return, which remains constant throughout its existence.  The specific Series I interest rate is determined twice a year, on May 1 and on November 1. 

There also is an additional interest factor amount that is a function of measured inflation.  This inflation rate factor also adjusts semiannually, on May 1 and on November 1. The two aspects to the rate of return are combined together, to determine the total return. 

Purchase Of Savings Bonds

Savings Bonds may be purchased at banks and other financial institutions, at Treasury Direct (the U.S. Treasury Web site), or through payroll deductions, if offered, where you are employed. 

You can own Savings Bonds, if you have a Social Security Number and you comply with the following rules: 

§  United States resident, or a United States citizen who lives abroad

§  Civilian employee of the United States, regardless of where you live

§  Minor, under age eighteen. Unlike other securities, minors may own U.S. Savings Bonds. The IRS requires a minimum age of twenty-four at the Bond’s issue date, in order to be considered as a qualified Bond, to be used in the future, for higher education expenses. Consult the IRS publication 970 for more information on this topic

Savings Bond Redemption and Penalties 

References

Tax Benefits for Education

(Official IRS Publication 970)

TreasuryDirect

(U.S. Treasury Securities Website) 

Series EE Interest Rates

(Current Series EE Interest Rates) 

Series I Interest and Inflation Rates

(Current Series I Interest Rates and the Corresponding Inflation Rate)