• Bonds
  • EE Savings Bonds

    EE Savings Bonds Splash image
    EE Savings Bonds are low-risk, U.S. government-backed securities. EE bonds purchased on or after May 1, 2005, earn a fixed rate of return (determined by the issue date), while EE bonds purchased prior to May 1, 2005, have rates based on five-year Treasury security yields and earn a variable market-based rate of return. These savings bonds are also exempt from state and local taxes. If the bonds are used for paying college expenses, they are exempt from federal taxes as well.

    How It Works

    EE Savings Bonds are guaranteed by the United States government. Rates for newly issued bonds are adjusted each May 1 and November 1, with each new rate effective for all bonds issued in the six months following the adjustment. The bonds increase in value every month (as opposed to every six months like older bonds) and interest is compounded semiannually. Rates for EE bonds are posted on the TreasuryDirect Web site (www.treasurydirect.gov).

    EE Bonds can be redeemed one year after purchase; however, if you redeem EE Bonds in the first five years, you will forfeit the three most recent months' interest. So if you owned a bond for 24 months, you will receive the original investment plus 21 months of interest.

    The U.S. Treasury guarantees that, at a minimum, an EE Bond will double its value after 20 years and will continue to earn the fixed rate unless a new rate or rate structure is announced. If a bond does not double in value as the result of applying the fixed rate for 20 years, the U.S. Treasury will make a one-time adjustment after 20 years to make up the difference. Series EE bonds continue to earn interest for 30 years; after 30 years no interest is earned. All bonds are non-transferable. Only the owner of the bond can cash it. Bonds that are bought as gifts must be registered in the recipient's name, not the buyer's name.


    There are two main types of EE Savings Bonds: paper and electronic.

    Paper EE Bonds can be bought in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000, while electronic EE Bonds can be bought to the penny for $25 or more. For example, you could buy a $50.23 bond.

    The purchase price of a paper EE Bond is half of its face value (i.e., you pay $50 for a $100 bond). The bond will reach the full face value at maturity, with the maturity date dependent on the interest rate. After maturity, the bond will continue to earn interest up to 30 years. You can redeem the bond before maturity but will get less for the bond than the full maturity value. The closer the bond is to maturity, the closer the bond's market value will be to the face value.

    Electronic EE bonds are bought at full face value. For example, a $30 bond is sold for $30. Interest is earned on the face value, compounded semiannually for up to 30 years.

    How to Trade

    You can purchase electronic EE bonds through TreasuryDirect (www.treasurydirect.gov). The site offers 24/7 access to your account and allows for automatic purchases of as little as $25.

    You can buy paper EE Bonds from many banks and financial institutions. Paper bonds are printed based on your specifications and are then mailed to you in 15 business days. The issue date reflects the date of purchase so that no interest is lost. Some banks allow you to purchase paper bonds through their Web sites as well. Paper EE bonds purchased through a financial institution after December 10, 2001, have the words "Patriot Bond" printed on the top half.

    If an employer offers the option, EE Bonds can be bought through a payroll savings plan. You have the ability to buy paper or electronic bonds through this service.

    Your purchases are limited to $5,000 each calendar year for both paper and electronic EE Bonds.

    To redeem electronic bonds, you can go to the TreasuryDirect Web site, follow the instructions and the redemption amount is deposited into a checking or savings account within one business day. Paper bonds can be cashed at most financial institutions with the proper identification.

    You can redeem up to $1,000 worth of bonds at one time based on documentary identification alone. To redeem more, you'll need to sign the bonds before a certifying officer, provide your Social Security number and mail the bonds to the Treasury Retail Securities Site that services your area.

    Electronic bonds offer more flexibility. If you own paper bonds, you can trade them in for electronic bonds at TreasuryDirect using a program called Smart Exchange. You must set up an account with TreasuryDirect to accomplish this.

    Investor Suitability

    EE Savings Bonds are relatively safe investments. Many bonds are given as gifts and used to pay for college because of the tax advantages and guaranteed return.

    Tax Consequences

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    Interest earned on EE Bonds is exempt from state and local income taxes. You can defer federal income tax until you redeem the bonds, or when they stop earning interest after 30 years. The interest you earn is subject to federal taxes unless the bond income is used for education. The tax payments can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first. Savings bonds are subject to estate, inheritance, gift, or other excise taxes, whether federal or state.

    Special tax benefits allow you to pay no taxes when the bond proceeds are used to pay for post-secondary education. If you qualify, you can exclude all or part of the interest earned on the bond from your federal income claims when the bonds are redeemed.

    If a bond is reissued or the bond owner dies, tax implications can differ. Always see a tax professional in these special circumstances. Bonds are reissued for various reasons, most having to do with changing co-owners and beneficiaries.

    The Pros

    • Guaranteed by the Government: The EE Savings Bonds are fully backed and guaranteed by the U.S. government, making them a virtually safe investment.

    • Tax Benefits: EE Savings Bonds are exempt from state and local income taxes, and if used for college tuitions, are exempt from federal income taxes as well.

    • Fixed Rate of Return: EE Bonds purchased on or after May 1, 2005, earn a fixed rate of return and increase in value every month.

    The Cons

    • Lower Rates of Return: The current rate for EE Bonds is 3.4% (through October 2007). Many money market and certificates of deposit (also considered very safe investments) will pay a higher rate.

    Additional Information

    TreasuryDirect is sponsored by the U.S. Department of the Treasury's Bureau of the Public Debt. TreasuryDirect is a financial service Web site that allows investors to purchase and redeem securities directly from the U.S. Treasury Department in paperless electronic form. The site also offers product information and research tools for a variety of Treasury securities, including a Savings Bond Calculator that allows you to find out what your bonds are currently worth.


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