What Series EE Bonds Are and How They Earn Money

Series EE bonds are savings bonds issued by the U.S. Treasury that you buy at half their face value and hold until they reach full value or beyond. If you buy a $100 EE bond, you pay $50 upfront. The bond earns interest every month, and after 20 years it is may provide to be worth at least double what you paid — so that $50 becomes at least $100. If interest rates have been higher during those 20 years, it will be worth more.

The interest rate on EE bonds is set by the Treasury and changes every six months, on May 1 and November 1. The current rate applies to all bonds purchased during that six-month period. You can find the current rate on the TreasuryDirect website before you buy. The rate you lock in when you purchase stays with your bond for the first 20 years; after that, the rate resets every six months for as long as you hold it.

Interest compounds semiannually, meaning the Treasury adds earned interest to your bond twice a year, and future interest is calculated on the new total. You do not receive the interest as cash — it stays in the bond and grows automatically.

Key Takeaways

  • You purchase a Series EE bond at half its face value and it earns interest monthly, compounding twice a year, until you cash it in.
  • After 20 years, your bond is may provide to be worth at least double your purchase price, regardless of interest rates during that time.
  • The interest rate is locked in for the first 20 years from the date you buy, then resets every six months if you continue holding the bond.
  • You can cash in an EE bond anytime after one year, but if you cash it in before five years have passed, you lose the last three months of interest as a penalty.
  • Interest on EE bonds is not taxed by your state or local government, and federal tax can be deferred until you cash the bond in or it matures.

How to Buy Series EE Bonds

You buy Series EE bonds through TreasuryDirect, the official online platform run by the U.S. Department of the Treasury. You cannot buy them through a bank or broker. To set up an account, you need a Social Security number, a valid email address, and a U.S. bank account for electronic transfers.

Once your TreasuryDirect account is open, you can purchase bonds in any amount from $25 to $10,000 per calendar year (the $10,000 limit applies to electronic purchases; you can buy up to an additional $5,000 in paper bonds with your tax refund, though this option is less common now). The money is withdrawn from your bank account immediately, and the bond appears in your account within minutes.

You can buy bonds for yourself or as a gift for someone else. If you buy a bond as a gift, you specify the recipient, but the bond is held in your TreasuryDirect account until the recipient claims it. The recipient can then transfer it to their own account or leave it in yours.

When You Can Cash In and What Happens to Your Money

You can cash in a Series EE bond anytime after you have held it for one year. If you cash it in before five years have passed, the Treasury deducts the last three months of interest as a penalty. For example, if you hold the bond for two years and then cash it in, you receive the value of the bond minus three months of interest.

After five years, you can cash in without any penalty, and you receive the full current value of the bond. The money is deposited into your bank account within a few business days. You can also let the bond continue to grow beyond 20 years — EE bonds earn interest for up to 30 years from the date of purchase.

When you cash in the bond, the Treasury reports the interest earned to the IRS. You will owe federal income tax on that interest in the year you cash the bond in, unless you have chosen to report the interest each year as it accrues (most people do not do this). State and local taxes do not apply to EE bond interest.

The may provide Doubling and What It Really Means

The 20-year doubling may provide means that if you hold your bond for exactly 20 years, it will be worth at least twice what you paid for it. The Treasury makes up any shortfall if interest rates have been very low. This may provide applies only to bonds purchased after May 2003; older bonds have different terms.

In practice, the doubling may provide is a floor, not a ceiling. If interest rates have been higher during those 20 years, your bond will be worth significantly more than double. The actual value depends on the rates that were in effect during each six-month period you held the bond. You can check your bond's current value anytime by logging into TreasuryDirect.

After 20 years, the rate resets every six months based on current Treasury rates. If rates are very low, your bond may grow slowly. If rates rise, your bond will earn more. You are never locked into a low rate for more than six months after the initial 20-year period ends.

Tax Treatment and Tax-Advantaged Strategies

Interest earned on Series EE bonds is exempt from state and local income tax. Federal income tax is owed, but you can defer paying it until you cash the bond in. This makes EE bonds useful for people who expect to be in a lower tax bracket in the future — for example, someone who is working now but plans to retire in 15 years and have lower income then.

There is also a tax-free redemption option if you use the bond proceeds to pay for may have access to education expenses. If you cash in an EE bond in the same year you pay tuition, fees, or room and board at an accredited college or university, or for a K–12 private school, you may be able to exclude the interest from your taxable income. This option has income limits and specific rules; the IRS Form 8815 covers the details.

To use the education exclusion, the bond must have been purchased when you were at least 24 years old, and the bond must be in your name (not your child's name). The proceeds must be used for the education expenses in the same tax year the bond is redeemed.

How Series EE Bonds Compare to Other Savings Options

Series EE bonds are slower-growing than stocks or stock-based funds, but they carry no market risk — your principal is backed by the U.S. government. The current interest rate is typically lower than what you might earn in a high-yield savings account or a certificate of deposit (CD), but EE bonds lock in a rate for 20 years, which protects you if rates fall sharply.

Unlike a CD, there is no early withdrawal penalty after five years, and you can cash in anytime without losing principal. Unlike a savings account, the interest is not taxed by your state or local government. The trade-off is that your money is less liquid — you cannot access it for one year without losing interest, and the growth is slower than riskier investments.

EE bonds work best as part of a longer-term savings plan, not as a place to park money you might need soon. If you have a time horizon of 5 to 30 years and want a may provide, tax-efficient way to grow money without market risk, they are worth considering alongside other fixed-income options.

Frequently Asked Questions

Can I buy Series EE bonds for my child?

You can buy a bond as a gift and register it in your child's name, but the child must be at least one year old to own a bond. If your child is under 18, you act as the custodian. The interest is taxed to your child, which may result in a lower tax rate if your child has little other income. You can also buy bonds in your own name and transfer them to your child later.

What happens if I need the money before one year is up?

You cannot cash in a Series EE bond before one year has passed. Your money is locked in for that first year. If you know you might need the money within 12 months, a high-yield savings account or a short-term CD is a better choice.

Do I have to report the interest every year, or can I wait until I cash it in?

You can choose either way. Most people wait until they cash the bond in to report and pay tax on the interest. If you prefer to report it each year as it accrues, you can elect to do so on your tax return. Once you make that choice, you must stick with it for that bond.

What is the difference between Series EE and Series I bonds?

Series I bonds have an interest rate that adjusts every six months based on inflation, making them better protection against rising prices. Series EE bonds have a fixed rate for 20 years. I bonds are better when inflation is high or unpredictable; EE bonds are better when you want a predictable, locked-in return.

Can I lose money on a Series EE bond?

No. Your principal is may provide by the U.S. government, and after 20 years your bond is may provide to be worth at least double what you paid. You cannot lose money, but you can earn less than inflation if rates are very low, which means your purchasing power declines over time.