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Difference Between ‘EE’ and ‘I’ Bonds

business-1‘EE’ vs ‘I’ Bonds

There are many investment alternatives available for investors through the Treasury Department, among which are series I bonds, and the relatively better known series EE bonds. Periods of stock market unpredictability and uncertainty, see many investors search for safer and more conservative alternatives for their investments. Changes in the interest rates will often reflect in the returns on most bonds, as returns are commonly subject to a great deal of volatility.

‘I’ bonds started being issued in 1998, by the Treasury Department. In a number of ways,’ I’ bonds are pretty similar to the better known ‘EE’ bonds, but there are significant differences between the two.

Paper EE bonds are issued by the federal government at a discount of 50% of their face value, and issued in denominations of 50, 75, 100, 200, 500, 1000, 5000 and 10000 dollars. At face value, a client may generally spend up to $60,000 per calendar year on paper EE bonds. Electronic EE bonds were introduced in May 2003, and are not issued at a discount, but are rather issued only at face value. A client may spend up to 30,000 dollars in a calendar year on electronic EE bonds. An interest rate, determined by calculating 90% of the half-year average of five-year Treasury securities, is applied to the bonds twice a year, which results in a varying interest rate over the bonds’ life. Even though interest accrued is added to the bond value on a monthly basis, the actual compounding is done twice a year. New rates are announced by the Treasury Department each May 1st and November 1st, and once this happens, it applies to all issued bonds during the next six month holding period.

‘I’ bonds are issued by the federal government in the same denominations as EE bonds, but unlike EE bonds, I bonds are issued at face value. A client can purchase up to 60,000 dollars per calendar year, that is 30,000 in paper and 30,000 as electronic. The interest rate on the I bond is a combination of a fixed and a variable rate. The fixed rate is determined by the federal government every May 1st and November 1st, and it will apply to all bonds issued within the six month period. For a given bond, the initial fixed rate will not vary, but will apply throughout the bond’s life. The variable interest rate is determined by government using the Consumer Price Index for all urban Consumers (CPI-U), and it applies to each semi-annual interest period.

Summary
1. EE bonds are issued at a discount (50%) of their face value, while I bonds are offered at face value.
2. EE bonds only have a varying interest rate, while I bonds have both fixed and varying interest rates.


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