EE Government Bonds Problems

The familiar EE bonds also come in electronic form.

EE bonds have many advantages, including their safety and ease of purchase. You can buy them in paper form at many banks or in electronic form at Treasury Direct. However, they have a few disadvantages that you should consider.

Purchase Limits

The Treasury limits how much you can invest in EE bonds each year. You can invest $5,000 in electronic EE bonds and $5,000 in paper bonds for one Social Security Number in one calendar year, as of 2010. If you want to invest larger amounts in Treasury securities, you need to buy another type.

Limits on Redemption

You cannot redeem the bonds until one year after the purchase date. If you redeem them within five years, you will pay a penalty amounting to three months' interest. If you want to cash more than $1,000 worth of paper EE bonds at one time, you need to have your bank certify them and send them to a Treasury Retail Securities Site.

Interest Rate Risk

Depending on when you bought them, your bonds pay a fixed or variable rate of interest. Bonds with issue dates subsequent to May 2005 pay a fixed rate depending on their date. If interest rates rise while you hold the bonds, you will lose money compared to other investments.

Payroll Deduction

If you buy your bonds through payroll deduction, you will soon have to switch to electronic bonds. The Treasury plans to eliminate paper bonds offered to employees through payroll deduction beginning January 1, 2011. The final date for paper bonds for federal workers is September 30, 2010.

References

• Treasury Direct: EE Savings Bonds in Depth
• Teasury Direct: Redeem EE/E Bonds

Resources

• Treasury Direct: Open an Account
• Treasury Direct: Treasury Retail Securities Site Locator