The U.S. Treasury's savings bond program was launched in 1935 to encourage Americans to save money and invest in the government. While the Treasury has evolved over time, savings bonds are now primarily issued electronically, with rare exceptions. 

Savings bonds are available in two types: Series EE and Series I. Series EE bonds offer a fixed rate and are guaranteed to double in value after 20 years, expiring after 30 years. In contrast, Series I bonds feature both a fixed rate and a variable rate to keep pace with inflation.

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I BONDS

Series I Bonds, or I Bonds, are a type of savings bond issued by the U.S. Treasury that provide investors with a unique blend of safety and inflation protection. These bonds are regarded as some of the lowest-risk investments available, as they are backed by the full faith and credit of the U.S. government.

Most Series I bonds are issued electronically, but you can also obtain paper certificates with a minimum purchase of $50 using your income tax refund, as stated by Treasury Direct. Currently, the interest rate on new Series I savings bonds is 4.28%, which will remain in effect until October 2024. This rate is consistent with the 4.28% rate that applied during the previous six months ending in April 2024.

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EE BONDS

The Series EE Bond, commonly known as a "Patriot Bond," is a non-marketable, interest-bearing savings bond issued by the U.S. government. These bonds are designed to at least double in value over a standard initial term of 20 years. In some cases, the total interest-earning period for Series EE Bonds can extend beyond the original maturity date, lasting up to 30 years from the date of issuance. The coupon rates for Series EE Bonds are set at the time of issuance and are linked to a percentage of long-term Treasury rates.

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Differences of I Bonds and EE Bonds

1. Interest Rate Structure

• I Bonds: Earn a combination of a fixed rate and a variable inflation rate that adjusts every six months based on changes in the Consumer Price Index (CPI).
• EE Bonds: Earn a fixed interest rate that remains constant for the life of the bond, set at the time of purchase.

2. Inflation Protection

• I Bonds: Provide protection against inflation due to the variable rate component that adjusts with inflation.
• EE Bonds: Do not provide inflation protection; the fixed rate does not change with inflation.

3. Guaranteed Value

• I Bonds: No guaranteed doubling in value; returns depend on the combined interest rates.
• EE Bonds: Guaranteed to double in value if held for 20 years, effectively providing a minimum annual return of 3.5%.

4. Maturity Period

• Both Bonds: Have a 30-year maturity period, consisting of a 20-year original maturity followed by a 10-year extended maturity.

5. Redemption Rules

• Both Bonds: Must be held for a minimum of one year before redemption, and if redeemed within the first five years, three months of interest is forfeited.

6. Purchase Limits

• I Bonds: Investors can purchase up to $10,000 in electronic I Bonds per year per Social Security Number, plus an additional $5,000 in paper I Bonds using a tax refund.
• EE Bonds: Also have an annual purchase limit of $10,000 in electronic form per Social Security Number, but there is no additional limit for paper EE Bonds.

7. Tax Treatment

• Both Bonds: Interest earned is subject to federal income tax but exempt from state and local taxes. However, tax on I Bonds can be deferred until redemption.

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Which should you invest in?

If inflation is a concern, I bonds and EE bonds could be valuable additions to your portfolio as both offer different types of protection. I bonds are directly linked to inflation, with a portion of their return adjusting based on consumer prices. However, I bonds must be held for at least 12 months before they can be cashed out, and if you redeem them within five years, you'll lose three months' worth of interest.

On the other hand, if you’re not worried about inflation but want a safe, stable investment, EE bonds might be a better choice. They offer a fixed interest rate and a guaranteed return that doubles your investment after 20 years. Similar to I bonds, EE bonds also require a minimum holding period of 12 months, with a penalty of three months' interest if cashed in before five years.

While I bonds provide a hedge against inflation, EE bonds offer long-term security with predictable growth, making them a solid option for those seeking stability in uncertain markets.

Conclusion

Both I Bonds and EE Bonds offer distinct advantages depending on your financial goals. I Bonds are an excellent choice for those looking to protect their investments against inflation, providing a variable rate that adjusts with the Consumer Price Index. On the other hand, EE Bonds offer a guaranteed return that doubles your investment after 20 years, making them a reliable option for those seeking long-term growth with minimal risk.

However, if you’re looking for a higher yield with added flexibility, consider investing in Compound Real Estate Bonds. Backed by real estate and U.S. Treasuries, these bonds offer an impressive 8.5% APY with the added benefits of no fees, flexible withdrawals, and an easy-to-use app. Whether you’re concerned about inflation or simply want a stable investment option, Compound Real Estate Bonds provide a secure and lucrative alternative to traditional savings bonds, helping you achieve your financial goals with confidence.