What an EE Savings Bond Actually Is

An EE Savings Bond is a piece of paper or digital record from the U.S. Treasury that represents money you have lent to the federal government. You buy the bond for a set price, the government holds your money, and after a certain amount of time passes, the bond is worth more than you paid. That increase in value is your interest — the government's way of paying you back for letting them use your money.

The bond itself does not pay you anything while you hold it. There are no checks in the mail, no deposits to your bank account. Instead, the value grows invisibly. When you cash the bond in — which you can do at most banks or through the Treasury's website — you receive the original amount you paid plus all the interest that has accumulated.

Key Takeaways

  • You buy an EE bond at face value (the price you pay is the amount printed on it), and it grows in value over time as interest accrues.
  • The bond reaches its full maturity and stops earning interest after 30 years, though you can cash it in anytime after one year without penalty.
  • If you cash in a bond before five years have passed, you lose the last three months of interest as a penalty.
  • EE bonds are backed by the U.S. government, so there is no risk of losing the money you put in.
  • Interest rates on new EE bonds change every six months and are set by the Treasury, not by individual banks.

How You Buy an EE Bond and What It Costs

You can buy an EE bond in two ways: as a paper bond through a bank, or as a digital bond through TreasuryDirect, which is the Treasury Department's online system. Paper bonds are less common now, but some banks still sell them. Digital bonds are faster and easier — you set up an account on TreasuryDirect.gov, link a bank account, and buy bonds directly from the government without a middleman.

The price you pay is the face value of the bond. If you buy a $50 EE bond, you pay $50. If you buy a $100 bond, you pay $100. There are no hidden fees, no commissions, no charges added on top. What you pay is what the bond is worth on the day you buy it.

How Interest Accrues and When You Earn It

EE bonds earn interest every month, but you do not see that interest until you cash the bond in. The interest compounds — meaning interest earns interest — and the total value of your bond grows steadily. The Treasury sets the interest rate for all new EE bonds every six months, on May 1st and November 1st. The rate you receive is locked in for the first six months you own the bond, then it adjusts to the new rate for the next six months, and so on.

Because rates change twice a year, two people buying EE bonds on different dates will earn different amounts of interest over the same holding period. The Treasury publishes these rates publicly, so you can see what rate you will receive before you buy. The current rate is always available on TreasuryDirect.gov.

When You Can Cash In Your Bond and What Happens If You Do It Early

You can cash in an EE bond anytime after you have owned it for one year. If you cash it in during that first year, you lose the bond entirely and get back only what you paid — no interest at all. After one year, you can withdraw, but there is a catch: if you cash it in before five years have passed, you forfeit the last three months of interest.

This penalty exists to discourage people from treating EE bonds like savings accounts. If you hold the bond for five years or longer, there is no penalty — you receive the full value, including all interest earned. After 30 years, the bond stops earning interest and is considered mature. You can still hold it after that, but it will not grow any further.

The Difference Between Holding to Maturity and Cashing Early

If you buy a $50 EE bond and hold it for 30 years, the Treasury guarantees it will be worth at least $100 — double your money. This is a promise built into the bond itself. However, if interest rates are higher than expected, your bond may be worth more than $100 by the time it matures. If rates are lower, it will be worth exactly $100 and no more.

If you cash in that same $50 bond after 10 years, you get whatever it has grown to in that time, minus the three-month interest penalty if you cashed in before five years. The longer you hold, the more interest accumulates, and the closer you get to that doubling may provide.

How to Buy and Track Your Bonds

To buy digital EE bonds, go to TreasuryDirect.gov and create an account using your Social Security number and a valid email address. You will need to link a checking or savings account so the Treasury can withdraw the purchase price. Once your account is set up, you can buy bonds in any amount from $25 to $10,000 per transaction. You can make as many purchases as you want throughout the year.

Your bonds appear in your TreasuryDirect account immediately after purchase. You can log in anytime to see the current value of each bond, the interest rate it is earning, and when it will mature. If you own paper bonds, you can register them with TreasuryDirect as well, which gives you a digital record and makes them easier to track.

Who Should Own EE Bonds and Why

EE bonds are useful if you have money you do not need for at least five years and you want a safe place to keep it. Because they are backed by the U.S. government, there is zero risk of losing your principal — the amount you invested. You will never receive less than you paid, and you will always earn at least some interest.

They are less useful if you need the money sooner or if you want higher returns. The interest rates on EE bonds are typically lower than what you can earn in a high-yield savings account or a money market fund. They are also not a good choice if you might need to withdraw your money within five years, because the three-month interest penalty can eat into your gains.

Frequently Asked Questions

Can I lose money on an EE bond?

No. The U.S. government guarantees that your bond will be worth at least what you paid for it. Even if interest rates fall to zero, you will get back your full purchase price when you cash it in.

What happens if I cash in my bond before one year?

You receive only the amount you paid. All interest is forfeited. This is why the Treasury requires you to hold for at least one year before cashing in.

Do I have to pay taxes on the interest I earn?

Yes. The interest on EE bonds is subject to federal income tax, though not state or local tax. You can choose to pay taxes each year as interest accrues, or wait and pay all the taxes when you cash the bond in. Most people wait until they cash it in.

Can I buy EE bonds for someone else, like a child?

Yes. You can buy a bond and register it in someone else's name, or buy it as a gift. If you register it in a child's name, the interest is taxed to the child, which may result in lower taxes overall if the child has little other income.

What is the difference between an EE bond and an I bond?

I bonds have interest rates that adjust based on inflation, while EE bonds have fixed rates that change every six months but stay the same for each six-month period you own the bond. I bonds are better if you are worried about inflation eating into your returns; EE bonds are simpler if you prefer predictability.