Both EE and I bonds are part of the U.S. Treasury's savings bond program, which is designed to offer low-risk investments with tax advantages. Despite their similarities, Series EE bonds and Series I bonds are very different financial products in practice. The EE bond program is better known than the I bond program and has been around considerably longer.
Series EE Savings Bond Program
Series EE bonds are non-marketable savings bonds, meaning that they cannot be bought or sold in secondary market. These bonds have a guarantee from the U.S. government to at least double in value over the first term of the bond. The initial term usually lasts for 20 years, but most EE bonds have an interest-paying life that extends an additional 10 years past that term.
Interest income from EE bonds are exempt from state and local taxes, and coupon rates are assigned based on a certain percentage value of long-term Treasury rates. The underlying rates are set twice a year, in May and November, and stay the same for all issued bonds over the following six-month period. Older EE bonds do not have a fixed coupon rate, but that changed beginning in May 2005.
Paper EE bonds are no longer issued, and so investors can only purchase new ones electronically. When they were available, paper EE bonds were issued at a 50% discount to par. Electronic EE bonds are purchased at face value and can be valued to the penny for $25 or more. The maximum annual purchase amount is $10,000. Series EE bonds are not indexed for inflation, but this is somewhat offset by the guaranteed minimum doubling in value.
The Series I Savings Bond Program
Much like EE bonds, Series I bonds are non-marketable. Unlike EE bonds, these bonds don't come with a guarantee to at least double in value over the initial term of the bond. Instead, I bonds come with a fixed coupon rate and receive an additional inflation-adjusted interest rate that is adjusted semi-annually (in May and in November) based on the CPI-U.
Interest is only taxable at the federal level, like EE bonds. However, investors can avoid federal taxes if they use the I bonds to pay for higher education. This can be done by selling an I bond and then immediately (within same calendar year) using the proceeds to pay for qualified higher education expenses at an eligible institution.
Paper I bonds are no longer directly sold, but can be purchased indirectly as part of a tax refund. Otherwise, all I bond purchases can be made electronically by anyone over the age of 18 with a valid social security number. They are available on the U.S. Treasury's website, TreasuryDirect. They can also be redeemed online whenever the owner wishes, but if they are redeemed prior to being held for at least five years, the owner will forfeit interest payments for the three most recent months.
I bonds have the same purchase limits as EE bonds: to the penny over $25 with an annual maximum of $10,000, except in the case of tax-refund purchased paper bonds, which have an annual limit of $5,000.
There is an added level of safety built into a U.S. Treasury I bond. As the name suggests, the securities are protected against inflationary changes while they are held by the investor, as their interest rates adjust to changes in the inflation rate. This is entirely different from typical fixed-income securities, which pays a specified dollar value in interest at regular intervals. With that type of bond, an investor may lose out if the inflation rate rises after he or she purchases the security.
During low inflation or even deflation, I bonds do not have the same guarantee to double in value, making EE bonds somewhat safer.