In the months following the 9/11 attack, Congress authorized the Treasury Department to issue Patriot Bonds. A Patriot Bond is a paper savings bond with the words "Patriot Bond" printed on the front side of the bond. Patriot Bonds were sold from December 2001 through December 2011, when paper savings bonds were discontinued. Patriot EE Bonds and regular EE bonds follow the same terms and conditions.
General Patriot Bond Features
Patriot EE Bonds were sold for 50 percent of the face value. For example, a $100 face value bond cost $50. The bonds accrue interest after you buy them, meaning the interest is added to the bond at regular intervals. Thus, at any given time you can calculate the worth of a Patriot Bond by adding the interest earned to the bond's purchase price. Until a savings bond is five-years-old, you lose three months' interest if you cash it in. After the five-year mark, there are no penalties for early redemption.
Interest is subject to federal income tax but not to state or local income taxes. You can pay the tax each year or defer payment until the year you redeem a Patriot Bond. However, if you use a Patriot Bond to pay qualified higher education. costs, the interest is exempt from taxes.
Patriot Bond Interest
The Treasury Department adds interest to a Patriot Bond each month. Suppose you bought a Patriot Bond for $100 and the interest rate is 1.2 percent per year. This interest rate for $100 works out to 10 cents per month. At the end of six months, the interest is compounded. For a Patriot Bond, this means that for the next six-month period, interest is calculated using a principal balance of $100 plus the first six months worth of interest, or $100.60. This six-month cycle repeats for the life of the bond.
Changes in Interest Terms. Patriot Bonds sold before May 1, 2005 pay a variable interest rate. The interest rate changes every six months. Bonds purchased starting May 1, 2005 pay a fixed rate. The interest rate was set when you bought the bond and remains constant until the bond matures or you cash it in.
Double Your Money Guarantee
All Patriot Bonds are guaranteed to double in value after a specified number of years. If you purchased a bond prior to June 1, 2003, the period is 17 years. For bonds sold after that date, the doubling guarantee kicks in after 20 years. In the event a Patriot Bond's accrued interest does not double its worth within the 17- or 20-year time frame, the Treasury Department adjusts the value to twice the original purchase price. The bond then continues to earn its regular interest until it matures after 30 years.