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Beginner's Guide to Series I and Series EE U.S. Savings Bonds

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Advantages and Disadvantages of Using U.S. Savings Bonds for College Savings

Potential Advantages:

Purchasing US Savings Bonds (Series EE or I) is one of the simplest ways to set aside money for college. There is no need to open an account at a financial institution, complete complex paperwork, or research and manage investment options. Further, the future value of Savings Bonds, especially Series EE bonds, is very easy to estimate.

Savings Bonds are available in small denominations and can be purchased for as little as $25 at a time.

The interest on these bonds is fully exempt from Federal and state income taxes when used for qualified college expenses, which makes them competitive with higher paying, but taxable investments.

Potential Disadvantages:

The biggest disadvantage, which is generally the case with any increased level of safety and simplicity, is a lower rate of return. With a historical rate of return between 4-6% annually, successful stock market investments can easily outperform U.S. Savings Bonds by double.

Another disadvantage, is that the exemption from paying taxes on college expenses is more limited than some of the other college savings accounts. Series EE and I bonds are only exempt from taxation when used for tuition (not room, board, or books), and are available only for taxpayers whose income is less than certain amounts.

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