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What EE Bonds Are and How They Work

EE Bonds are savings bonds issued by the U.S. Department of the Treasury. They represent a loan you make to the federal government, and in return, the government pays you interest over time. Understanding how these bonds function is the first step in learning whether they might fit into your financial picture.

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When you purchase an EE Bond, you pay a specific amount upfront. The bond then grows in value as interest accumulates. The Treasury guarantees that your EE Bond will double in value within 20 years if held for the full term. This means if you invest $50, it will be worth at least $100 after 20 years, though it may grow more depending on current interest rates.

EE Bonds earn interest monthly, but the interest is not paid out in cash. Instead, it's added to the bond's value. This process is called compounding. For example, if your bond earns $2 in the first month, that $2 stays in the bond and earns its own interest the following month. This creates a snowball effect where your money grows faster over time.

The current interest rate for EE Bonds is set by the Treasury and changes every six months—typically in May and November. Rates are based on the average yield of five-year Treasury securities. As of recent data, EE Bond rates have ranged from as low as 0.10% annually to as high as 9.62% annually, depending on when you purchased the bond.

You can purchase EE Bonds through TreasuryDirect.gov, which is the official government website for buying savings bonds. You can buy bonds in denominations from $25 to $10,000, though you only pay half the face value upfront. For instance, a $100 bond costs $50 to purchase.

Practical Takeaway: EE Bonds are a low-risk savings tool where your money is guaranteed to at least double over 20 years. The interest compounds monthly without you needing to do anything, making them a hands-off investment option that doesn't require active management.

Understanding Bond Maturity Periods and Redemption Rules

The length of time you hold an EE Bond significantly affects your returns and when you can access your money. Knowing the rules around holding periods and redemption is essential for planning your finances.

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EE Bonds have a final maturity period of 30 years. This means the Treasury will stop paying interest after 30 years. However, you can redeem (cash in) your bond at any time after you own it. There is no minimum holding period for EE Bonds purchased after May 2005.

If you redeem your bond before five years have passed, you will lose the last three months of interest as a penalty. For example, if you cash in a bond after three years, you only receive interest for 2 years and 9 months. After five years, you can redeem your bond without this penalty.

The current interest rate for your bond is locked in based on when you purchased it. If you bought the bond when the rate was 5% annually, you keep that 5% rate for the entire 30 years, even if rates fall to 1% later. This can be beneficial if rates drop, but it can work against you if rates rise significantly.

Interest on EE Bonds is paid every month, even on weekends and holidays. Your bond's value grows continuously, though you won't see the exact growth until you check your account on TreasuryDirect.gov. You can check your bond values as often as you want, and the website updates values monthly.

When you redeem a bond, the money is typically transferred to your bank account within a few business days. The redemption process itself takes only a few minutes through the TreasuryDirect website. You can redeem all or part of your bonds at any time.

Practical Takeaway: Plan to hold EE Bonds for at least five years to avoid losing three months of interest. After five years, you have complete flexibility to redeem your bonds whenever you need the money, and your interest rate remains the same for the entire 30-year period.

Tax Considerations and Reporting Requirements

The interest earned on EE Bonds is subject to federal income tax, but understanding the tax rules can help you make informed decisions about when to redeem your bonds and how to report them.

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Interest on EE Bonds is subject to federal tax but is not subject to state or local income taxes. This is a significant advantage compared to other savings vehicles like certificates of deposit (CDs), which may face both federal and state taxes. However, you still owe federal tax on the interest your bonds earn.

You have two choices for reporting EE Bond interest on your federal taxes. First, you can pay taxes annually as the interest accrues, even though you haven't cashed in the bond yet. Second, you can delay paying taxes until you redeem the bond or it reaches final maturity at 30 years. Most people choose the second option because it allows their money to grow without paying taxes each year.

When you do pay taxes on your bond interest, you report it as taxable income in the year you redeem the bond. If you hold the bond for 20 years and then redeem it, you'll owe federal income tax on all the interest accumulated over those 20 years—but only in the year you redeem it.

EE Bonds may offer a tax advantage if the interest is used for education. If you meet certain conditions, you may be able to exclude some or all of the interest from federal taxation. These conditions include using the bond proceeds for tuition and fees at an accredited college, university, or vocational school. Your income must also be below certain limits, which change annually. For 2024, the income limits are $163,650 for married couples filing jointly and $109,100 for single filers.

When you redeem multiple bonds, you'll receive a Form 1099-INT from the Treasury, which reports the interest earned. You use this form to report the interest on your tax return. If you're unsure how to report your bond interest, consulting with a tax professional can provide clarity specific to your situation.

Practical Takeaway: You can delay paying federal taxes on EE Bond interest until you cash in the bond, allowing your money to grow without annual tax payments. Keep in mind you'll owe federal income tax when you redeem, but you won't pay state or local taxes. If you use bonds for education expenses, you may be able to exclude some interest from taxation.

How to Find Information About Your Current Bond Holdings

If you own EE Bonds purchased years ago or inherited bonds, you may not remember all the details about them. The free information guide discusses how to locate and assess the value of bonds you currently own.

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The official website TreasuryDirect.gov maintains records of all bonds you've purchased directly through their platform. You can create a free account using your Social Security number and email address. Once logged in, you can view all your bonds, their current values, interest rates, and purchase dates. This service is available 24/7 and updated monthly.

If you purchased bonds through a bank or other financial institution before TreasuryDirect existed, those records may not appear in your TreasuryDirect account. In these cases, you may still have paper bonds, which are physical documents you keep in your possession. Paper EE Bonds issued after 2005 are no longer available for purchase, but many people still own them from earlier purchases.

Paper bonds can be difficult to track because they don't automatically update. To find out the current value of a paper bond, you can use the Savings Bond Calculator on the Treasury's website (treasurydirect.gov). You'll need information printed on the bond itself, such as the issue date and denomination. The calculator instantly shows your current bond value and the interest you've earned.

If you've inherited bonds from a deceased family member, you can still determine their value using the same calculator. You'll need the issue date, series (which is printed on the bond), and denomination. If the bonds were issued before 1974, you'll need to contact the Bureau of the Fiscal Service for assistance, as those bonds may still be earning interest decades later.

Bonds purchased through payroll savings programs at your workplace are tracked through TreasuryD