Are Series EE Bonds Worth a Look?

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By Lisa Gerstner From Kiplinger’s Personal Finance

Since high inflation took hold in the United States, Series I savings bonds—which offer an inflation-linked interest rate—have enjoyed a moment in the sun. I bonds purchased from November 2022 through April 2023 offer a lofty composite yield of 6.89 percent.

The Series EE savings bond is the demurer cousin of the I bond. Like I bonds, EE bonds are issued by the Treasury Department and backed by the full faith and credit of the U.S. government. But rather than include a variable inflation rate in their yield, they offer only a fixed rate. Series EE bonds issued from November 2022 through April 2023 yield 2.1 percent, a big jump from the 0.1 percent that newly issued bonds offered for several years before that.

Should you invest? Currently, the EE bond yield is unimpressive compared with those of I bonds and other high-yield savings options. Rates on top-yielding savings and money market deposit accounts are hitting 4 percent, and certificates of deposit are yielding as much as 5 percent. For example, a 27-month CD from Sallie Mae Bank through deposit platform SaveBetter (www.savebetter.com) recently had a 5 percent rate ($1 minimum).

For most of your savings, those alternatives make more sense. As with I bonds, you can’t redeem an EE bond within the first 12 months. If you cash it in before five years have passed, you lose the last three months of interest.

Earnings on EE bonds are subject to federal tax, but not state or local taxes. And the earnings might not even be federally taxed if you use the money for qualified higher education expenses.

For a portion of low-risk, long-term savings, EE bonds are worth considering. If accumulated interest doesn’t double the value of an EE bond after 20 years, the Treasury will adjust the bond’s value to twice the purchase price. That provides a guaranteed return of about 3.5 percent. And even a 2.1 percent yield won’t look so bad if interest rates drop as inflation cools in the future.

“Someone might use I bonds to hedge against high inflation and EE bonds to hedge against low inflation or deflation,” says Ken Tumin, founder of DepositAccounts.com.

You can purchase up to $10,000 in EE bonds per calendar year at www.treasurydirect.gov.

(Lisa Gerstner is a contributing editor at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit Kiplinger.com.)

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