What is a Qualified Savings Bond?

Qualified savings bonds are series EE bonds issued after December 1989.

How Does a Qualified Savings Bond Work?

Series EE savings bonds are bonds guaranteed by the United States government. They pay interest (usually at relatively low rates) and have varying maturities. Individuals, corporations, associations, organizations, trusts, estates, partnerships and other entities can own qualified savings bonds. The bonds must be purchased by individuals who are at least 24 years old.

Electronic EE bonds are sold at face value at must be for at least $25. Individuals can purchase up to $5,000 of electronic savings bonds in one year. Paper savings bonds, however, are sold at half their face value. They, too, have a $5,000 annual purchase limit. Series EE bonds purchased after May 1, 2005 earn a fixed rate of return.

Series EE bonds can be redeemed after six months, but investors who forfeit their bonds in the first five years lose three months of interest.

Why Does a Qualified Savings Bond Matter?

The interest on qualified savings bonds is free from federal, state, and local taxes if they are redeemed to pay for higher education.

Effective January 1, 2012, the U.S. Treasury will no longer sell paper savings bonds at financial institutions. All qualified savings bonds sales will be electronic.

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