Series EE and Series I bonds are savings bonds issued by the U.S. government. These bonds are taxable and they can be purchased by anyone; these bonds are available in amounts up to $30,000 per year. A benefit of purchasing these bonds for educational purposes is that if the principal and earnings from these bonds are used to pay for qualified educational expenses (for most parents, these expenses are very restrictive and include only tuition and required fees), the earnings are tax free. If the earnings are used for other purposes, the interest from the bonds will not be taxed until the bonds are cashed, and the earnings will be state tax-free.

These bonds have competitive interest rates that change every six months, and the bonds can be purchased in small denominations (as low as $25) over the Internet at www.treasurydirect.gov. They have a minimum maturity of five years; if they are cashed before that time, there is a three-month interest penalty (Bonds are discussed in more detail in the section on cash management).