EE bonds are savings bonds issued by the U.S. Treasury that you buy at a discount and cash in for a higher amount later

An EE bond is a type of savings bond sold by the U.S. Department of the Treasury. You buy one at half its face value — so a $100 bond costs you $50 — and the Treasury guarantees it will be worth at least that face value when you cash it in. The bond earns interest over time, which means it grows to be worth more than you paid for it.

EE bonds are backed by the full faith and credit of the U.S. government, which means there is no risk that the Treasury will fail to pay you. They are not traded on any market, so their value does not go up and down based on what other people are willing to pay. You own them until you decide to cash them in, and the Treasury will always buy them back at their current value.

Key Takeaways

  • You buy an EE bond for half its face value, so a $100 bond costs $50 upfront.
  • The bond earns interest monthly, and the Treasury guarantees it will reach full face value within 20 years.
  • You can cash in an EE bond anytime after one year, but you lose the last three months of interest if you cash it in before five years have passed.
  • EE bonds are exempt from state and local income tax, and federal tax can be deferred until you cash them in or they stop earning interest.
  • You can buy EE bonds only through TreasuryDirect, the government's online platform — not through banks or brokers.

How the purchase price and face value work

When you buy an EE bond, you pay exactly half of what the bond's face value is. If you want a bond with a $100 face value, you pay $50. If you want a $10,000 face value bond, you pay $5,000. This discount is built into every EE bond — there are no exceptions.

The face value is the amount the Treasury promises the bond will be worth at maturity. For an EE bond, maturity is 30 years from the date you buy it. However, the Treasury also guarantees that an EE bond will reach its face value within 20 years. If interest rates are low and the bond has not earned enough to reach face value by year 20, the Treasury adds a one-time adjustment to bring it to exactly face value.

Interest rates and how earnings work

EE bonds earn interest at a rate set by the Treasury, which changes every six months on May 1 and November 1. The current rate applies to all bonds purchased during that six-month period. The Treasury announces the new rate before it takes effect, so you can see what rate you will get before you buy.

Interest is compounded monthly, which means the interest you earn each month is added to the bond's value, and next month's interest is calculated on that larger amount. You do not receive the interest as a payment — it stays in the bond and makes the bond worth more. The bond's value grows automatically; you do nothing to collect the interest.

The rate varies depending on market conditions, so EE bonds purchased in one six-month period may earn a different rate than bonds purchased in another period. You can find the current rate and historical rates on the TreasuryDirect website.

When you can cash in an EE 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 before five years have passed, you lose the last three months of interest. This is called the early redemption penalty. After five years, you can cash in the bond without any penalty.

To cash in a bond, you log into your TreasuryDirect account, select the bond, and request redemption. The money is deposited into your bank account within a few business days. You receive whatever the bond is worth on the date you redeem it, not the face value — unless the bond has already reached face value or beyond.

For example, if you buy a $100 bond for $50 and cash it in after two years when it is worth $65, you receive $65 minus three months of interest. If you cash it in after five years and it is worth $75, you receive $75 with no penalty.

Tax treatment of EE bonds

EE bonds are exempt from state and local income tax. You do not pay those taxes on the interest, ever. Federal income tax is different — you do owe it, but you can choose when to pay it.

You have two options. First, you can report the interest each year as it accrues, even though you have not received any money. This spreads the tax bill across multiple years. Second, you can defer all federal tax until you cash in the bond. When you redeem it, you report the total interest earned and pay tax on it all at once in that year. Most people choose to defer because it is simpler and delays the tax bill.

If you use an EE bond to pay for may have access to education expenses — tuition and fees at an accredited college, university, or vocational school — you may be able to exclude the interest from federal tax entirely. This is called the Education Savings Bond Program. There are income limits and other rules, so you would need to check whether you may have access to.

Where to buy EE bonds and how the process works

You can buy EE bonds only through TreasuryDirect, which is the U.S. Department of the Treasury's online platform. You cannot buy them through a bank, broker, or any other financial institution. You set up a free account on the TreasuryDirect website, link a bank account, and purchase bonds directly.

You can buy EE bonds in any amount from $25 to $10,000 per calendar year per person. You can also buy them in smaller increments — for example, a $25 bond costs $12.50. If you want to buy more than $10,000 in a single year, you cannot do it through TreasuryDirect, though you can buy paper bonds through your bank's payroll savings plan if your employer offers one.

Once you buy a bond, it is held in your TreasuryDirect account. You can view its current value anytime by logging in. You do not receive a physical certificate unless you request one, and most people keep their bonds in electronic form.

EE bonds compared to other savings bonds

The Treasury also sells I bonds, which are another type of savings bond. The main difference is how interest is calculated. An EE bond earns a fixed rate set by the Treasury. An I bond earns a combined rate made up of a fixed portion plus an inflation portion that changes every six months. If inflation is high, an I bond may earn more than an EE bond, but if inflation is low, an EE bond may earn more.

Both EE and I bonds have the same one-year holding requirement and five-year early redemption penalty. Both are exempt from state and local tax. The choice between them depends on whether you think inflation will be high or low during the time you own the bond. Many people buy both types to spread the risk.

Frequently Asked Questions

Can I buy EE bonds as a gift for someone else?

Yes. You can buy an EE bond and register it in someone else's name through TreasuryDirect. The person you name as owner can cash it in anytime after one year. If you want to give the bond as a surprise, you can print a gift announcement from your TreasuryDirect account.

What happens if I never cash in my EE bond?

An EE bond stops earning interest 30 years after you buy it. At that point, you should cash it in because it will not grow anymore. The Treasury does not automatically cash it for you, so you have to request redemption yourself through TreasuryDirect.

Can I lose money on an EE bond?

No. The Treasury guarantees that an EE bond will reach its face value within 20 years. Even if you cash it in early and lose three months of interest, you will never receive less than you paid for it, assuming you hold it at least one year.

Do I have to report EE bonds on my taxes every year?

Only if you choose to. You can defer all federal tax until you cash in the bond. When you redeem it, you report the total interest earned on that year's tax return. State and local tax is never owed on EE bond interest.

What is the difference between a paper EE bond and an electronic one?

A paper bond is a physical certificate you can hold. An electronic bond exists only in your TreasuryDirect account. Both work the same way and earn the same interest. Electronic bonds are easier to manage because you can view and redeem them online anytime, while paper bonds require you to mail them in to redeem them.