How Do Series EE Savings Bonds Work?

Savings bonds pay interest for up to 30 years.

Series EE Savings Bonds are savings certificates issued by the U.S. Treasury. They are often used as gifts to minors or to set up a regular savings plan. Series EE bonds can be purchased at banks, through payroll savings plans or direct from the Treasury. EE bonds are a safe and easy way to save money.

Identification

Series EE bonds come in two forms, electronic bonds and paper bonds. Paper bonds are purchased at one-half the face value. For example, a $100 Series EE bond costs $50. Paper bonds come in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. Electronic bonds are issued to the penny starting at $25. A $50 bond costs $50. Electronic bonds can be purchased in odd amounts like $43.56. Series EE bonds are registered to the owner and can only be redeemed by the listed owner.

Potential

Series EE bonds earn interest for up to 30 years after issue. Bond rates are set on May 1 and Nov. 1, and all bonds sold in the next six months will earn the issue rate until they are redeemed. The EE bond rate is based on the current 10-year Treasury note rate and adjusted for factors specific to savings bonds. The value of a savings bond is guaranteed to double by 20 years. Series EE bonds issued before May 2005 are on different interest payment schedules that adjust to current interest rates.

Considerations

Series EE bonds must be owned for one year before they can be redeemed. Bonds redeemed in the first five years after issue will be charged a three-month interest penalty. The Treasury website at Treasury Direct has an online calculator to determine the current redemption value of a bond (see Resources for a link). The website also has downloadable software that will track the value of a collection of savings bonds. A maximum of $1,000 in bonds can be redeemed at a local bank with valid identification. To redeem larger amounts, the bonds must be mailed to the Treasury and a check will be issued.

Benefits

Series EE bonds are safe savings vehicles that can be purchased in small amounts and earn competitive interest rates. The interest paid on EE bonds is exempt from state and local income tax. The interest is also tax deferred from federal income tax until the bond is redeemed. Series EE bonds can be owned by minors.

Warning

It is important to keep a list of bond serial numbers and issue dates in a safe place. If paper EE bonds are lost or stolen, they can be replaced by the Treasury. Savings bonds are registered by Social Security number and cannot be cashed by another party. The Treasury also offers an exchange program where paper EE bonds can be exchanged for electronic bonds that will be held in a Treasury Direct account.

References

• Treasury Direct: Series EE Savings Bonds

Resources

• TreasuryDirect: Savings Bond Calculator