Bonds: The Unbeaten Path to Secure Investment Growth

Chapter 7. U.S. SAVINGS BONDS

U.S. SAVINGS BONDS are sold in two forms: EE bonds and I bonds. The U.S. Treasury Department issues them and markets them as a patriotic and profitable investment for the so-called little guy. Not surprisingly, they're the most widely held security in the world. The paper version of the series EE savings bond is named the Patriot Bond.

Simple Investments, With a Few Complexities

Although U.S. savings bonds have the reputation of being simple and straightforward, nothing could be further from the truth. Therefore, we start this chapter with the following warning: the structure of savings bonds is not only complex but has changed many times over the years. For example, the calculation of the yield on EE bonds has changed four times since 1990. Until May 2005, you could not predict what your return would be on EE savings bonds because it had a floating rate. I bonds still have a floating rate. Their tax consequences are even more complex. The way you register ownership of savings bonds has important tax consequences.

Because of these complexities, we describe the best way to capitalize on the advantages of the EE and I savings bonds under each individual description. Despite their complexity, savings bonds may be great investments. There are no fees, loads, or commissions to buy them. They are fully guaranteed by the U.S. government, will not decline in value over the years, and are not callable. They are free of state and local income tax and may be free ...