TreasuryDirect confusing note

[slowsaver]

I logged into my TreasuryDirect account, and saw a confusing note under MyAccount, right side panel (quote):

Info Direct
Savings Bond Rates
Bonds issued November 2020-April 2021
Series EE 0.10%*
Series I 1.68 %
*Regardless of interest rate, we guarantee these EE bonds will double in value if you hold them 20 years.​

What do they mean by, "EE bonds will double in value if you hold them 20 years?" My interest calculator says a $10k bond held for 20 years at 0.10% would only be worth about $10,200.

 

[pb4uski]

I found this:

Does Treasury also guarantee the growth in value of an electronic EE Bond?

Yes. Electronic bonds are sold at face value (not half of face value). They start to earn interest right away on the full face value. Treasury guarantees that for an electronic EE Bond with a June 2003 or later issue date, after 20 years, the redemption (cash-in) value will be at least twice the purchase price of the bond. If the redemption (cash-in) value is not at least twice the purchase price of the electronic bond as a result of applying the fixed rate of interest for those 20 years, Treasury will make a one-time adjustment at the 20-year anniversary of the bond's issue date to make up the difference.

EE Bonds continue to earn interest until they reach 30 years or you cash them, whichever comes first.

I get 3.53%... might be worth it for ballast money but OTOH, 20 years is a long time.

 

[slowsaver]

Thanks for the note, pb4uski.

So just to be clear: If I buy a $10k ee bond today, I can cash it in for (at least) $20k in 2040?

 

[slowsaver]

Ok, I found this:
https://seekingalpha.com/article/3967614-yes-ee-bonds-are-good-investment-interested-buy-may-1

Seems like a good deal if you know you'll live another 20 years, at least.

 

[CardsFan]

I have some old paper EE bonds. I was getting ready to cash them in, when I read a thread here (somewhere) that they were guaranteed to attain face value in 17 years (pre-2003 bonds bought at 1/2 face value).

Sure enough I checked them out and now track them on treasury direct

 

[pb4uski]

Thanks for the note, pb4uski.

So just to be clear: If I buy a $10k ee bond today, I can cash it in for (at least) $20k in 2040?

That's what it sounds like to me.

 

[gauss]

Yes - This is my understanding on how this works.

I sent in my first $10k today after seeing reference to the doubling in 20 years elsewhere.

-gauss

 

[Sunset]

Can I buy Treasury Direct bonds, example EE , within my IRA ?

 

[pb4uski]

Not that I could find.... if I could I would make EE bonds the ballast at the very bottom of the keel.

 

[big-papa]

Can I buy Treasury Direct bonds, example EE , within my IRA ?

No. But both EE bonds and Ibonds are tax deferred - you don't pay taxes unless you cash them in early or they mature.

 

[RetireAge50]

At what age should you stop buying these? Let’s see, maybe assume I live until 85 so stop at age 65 (otherwise not enough time to double).

 

[RunningBum]

Your beneficiary can keep the bonds (transfer to their name) and get the same benefit 20 years after you bought them, can't they?

 

[gauss]

^ My understanding is: Yes

If you die either your beneficiary or your estate could inherit the bonds. There is no need for them to redeem them before the bonds reach the age of 20 years.

-gauss

 

[gauss]

Can I buy Treasury Direct bonds, example EE , within my IRA ?

Possibly, but not very easily.

In general, an LLC can own TreasuryDirect accounts/assets.

A self-directed IRA, in general, could own an LLC.

The devil would be in the details.

-gauss

 

[zinger1457]

^ My understanding is: Yes

If you die either your beneficiary or your estate could inherit the bonds. There is no need for them to redeem them before the bonds reach the age of 20 years.

-gauss

Agree there is no requirement but there may be reasons to redeem them early. I have some EE bonds that I inherited that are scheduled to mature in a couple years when my expected tax bracket will be much higher so I have been doing partial redemptions the past couple years. When redeeming early it's best to plan the redemption right after the interest payments are made, in my case twice a year on 1 Feb and 1 Aug, otherwise you could lose up to 6 months of interest payments.

 

[pb4uski]

So if your EE bonds are scheduled to mature in a couple years I presume that if they had a guaranteed double your money provision that you are well past that? I can see partial redemptions making sense to manage the tax bite.

I can see this double your money in 20 years perhaps making more sense for DD and DS than for me, but it isn't bad for me either. I may consider buying some for them for gifts.

 

[CSdot]

It's been 30 years since I purchased any, but don't you buy EE savings bonds from the bank for 1/2 face? Meaning, you ask your banker for a $100 fave value EE savings bond, but you pay less than $100. My recollection from back when interest rates existed was you would pay the bank $50 in exchange for the $100 face value. Of course, the $100 would be on maturity.

 

[gauss]

^ No - I think that EE bonds are now all electronic via TreasuryDirect.

The $50 vs '$100 on maturity' concept has lived on, however, in the guaranteed doubling of value in 20 years (assuming it is more than the nominal floating rate paid - currently 0.1%). These EE bonds are purchased at face value.

If you are still interested in paper bonds only, I believe that they (I-bonds in this case) can be purchased via the IRS with your income tax refund.

-gauss