How Do EE Bonds Work?

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What is an EE Bond?

EE Bonds are a popular government backed savings tool. Any US citizen can own EE Bonds, even minors. Since May 1, 2005, EE Bonds earn a fixed interest rate. The fixed interest rate depends on when the bond is purchased. Buying an EE Bond when interest rates are high will result in a higher return on your savings investment.

How to Buy an EE Bond

EE Bonds can be purchased at most financial institutions or online at Treasury Direct. (See the resources section below for Treasury Direct's web address.) The bonds can be purchased for yourself or as a gift for someone else. To purchase an EE Bond, you need to provide the full name and social security number for the person the bond is being purchased for.

Treasury Direct

At financial institutions, only paper EE Bonds can be purchased. They are purchased for half face value. So if you want to purchase a $50 bond, you would only pay $25. Treasury direct gives you the option of purchasing a paper EE Bond or an electronic EE Bond. With an electronic EE Bond, you pay full face value. So if you want to purchase a $50 electronic bond, you would pay $50.

Paper EE Bonds can be purchased for a value of $50 or more. There is a $10,000 maximum yearly purchase limit per person.

Electronic EE Bonds can be purchased for a value of $25 or more. There is a $5,000 maximum yearly purchase limit per person.

Interest

EE Bonds earn interest on a monthly basis. The government guarantees that once an EE Bond matures it will be worth at least double the face value. If interest rates were not high enough to double the face value, the government will make an adjustment and add value to the bond when it reaches maturity.

Cashing an EE Bond

An EE Bond cannot be cashed in until at least one year from the date of purchase. Although the bonds can be cashed in after one year, they are not intended to be cashed that early. They are meant to be a long term investment. After one year, a bond purchased at half face value will be worth significantly less than the full value of the bond. A bond purchased at full face value will not be worth much more than the full face value. EE Bonds that are cashed in before five years from the purchase date, will have three months of interest deducted from the value of the bond.

Maximizing Money Earned

To maximize the money that you earn on an EE bond, you should not cash it in until it reaches full maturity. EE Bonds mature at twenty years after the purchase date. The government guarantees that a mature EE Bond will be worth at least double the face value. You can choose not to cash your bond in at maturity and continue to let it earn interest. EE Bonds continue to earn interest for thirty years from the purchase date.

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