A Series EE bond is a savings bond issued by the U.S. Treasury that you buy at half its face value and cash in for the full amount after 20 years

When you buy a Series EE bond, you pay $50 for a bond with a $100 face value. The bond earns interest monthly, and after 20 years it is may provide to be worth at least double what you paid. If interest rates have been low and your bond hasn't naturally doubled, the Treasury makes up the difference. You can cash it in anytime after one year, though you lose the last three months of interest if you do so before five years have passed.

Series EE bonds are backed by the full faith and credit of the U.S. government, which means there is no risk of losing your principal. The trade-off is that the interest rate is typically lower than you would earn from a high-yield savings account or a certificate of deposit (CD). The current interest rate is set every six months by the Treasury and applies to all bonds purchased during that period.

Key Takeaways

  • You purchase a Series EE bond at 50 percent of face value—pay $50 to own a $100 bond—and it earns interest each month.
  • The bond is may provide to double in value within 20 years; if market interest rates have been low, the Treasury adds the difference.
  • You can redeem the bond after one year, but redeeming before five years costs you the last three months of interest as a penalty.
  • Interest rates change every six months and are set by the Treasury; bonds purchased in different periods earn different rates.
  • Interest on Series EE bonds is exempt from state and local income tax, and federal tax can be deferred until you cash the bond or it matures.

How the interest rate and doubling may provide work

The Treasury announces a new interest rate for Series EE bonds on May 1 and November 1 each year. The rate you receive depends on when you purchase the bond. If you buy in June, your bond earns the rate announced in May; if you buy in December, it earns the rate announced in November. That rate stays fixed for the life of the bond, so you always know exactly what you will earn.

The doubling may provide is the defining feature. After 20 years, your bond will be worth at least twice what you paid, no matter what interest rates have done. If your bond has earned enough interest to double naturally, you receive that amount. If interest rates have been very low and your bond has not quite doubled, the Treasury adds a one-time adjustment to bring it to exactly double. This may provide applies only at the 20-year mark; after that, the bond stops earning interest.

When you can cash in a Series EE bond and what it costs

You can redeem a Series EE bond at any time after you have owned it for one year. However, there is a penalty for early redemption: you lose the last three months of interest. This means if you cash in a bond that is 4 years and 11 months old, you receive interest only through month 45, not month 59.

If you hold the bond for five years or longer, you avoid this penalty. You receive all the interest earned through the month you redeem it. Most financial institutions that sell Series EE bonds—including banks, credit unions, and the Treasury Direct website—can process the redemption for you. You receive the cash value within a few business days.

Tax treatment of Series EE bond interest

Interest earned on Series EE bonds is exempt from state and local income tax. This is a permanent benefit and applies regardless of where you live or where you redeem the bond. Federal income tax is another matter: you have a choice about when to pay it.

You can report the interest as income each year as it accrues, or you can defer all federal tax until you redeem the bond. Most people choose to defer because it allows the money to compound without being reduced by taxes each year. When you finally cash in the bond, you report all the accumulated interest on your federal tax return for that year. If you inherited a Series EE bond, the interest accrued before you inherited it is not taxable to you; you pay tax only on interest earned after the inheritance.

Series EE bonds versus other savings options

Series EE bonds offer safety and a fixed rate, but the interest rate is usually lower than what you can earn elsewhere. A high-yield savings account currently pays more interest and allows you to withdraw money without penalty at any time. A certificate of deposit (CD) with a five-year term typically pays a higher rate than a Series EE bond, though you do face an early withdrawal penalty if you need the money before the term ends.

The main reason to choose a Series EE bond is the doubling may provide and the tax deferral option. If you are certain you will not need the money for at least five years and you want the certainty of knowing your money will at least double, a Series EE bond removes the guesswork. If you might need the money sooner, or if you want the highest possible return, a high-yield savings account or a short-term CD is usually the better choice.

Where to buy Series EE bonds

You can purchase Series EE bonds directly from the U.S. Treasury through the TreasuryDirect website (treasurydirect.gov). You will need to set up an account, provide your Social Security number, and link a bank account for the purchase. Bonds are issued electronically; there are no paper certificates unless you request one after purchase.

You can also buy Series EE bonds through most banks and credit unions, though they may charge a small fee. Some employers offer payroll deduction programs that allow you to buy bonds automatically from each paycheck. The interest rate you receive is the same regardless of where you purchase the bond, so the choice comes down to convenience and whether you want to pay a fee.

What happens after a Series EE bond reaches 20 years

Once your Series EE bond reaches its 20-year maturity date, it stops earning interest. At that point, you should redeem it and move the money to an account that is still earning returns. If you forget to redeem it, the money sits idle and earns nothing.

You can hold a Series EE bond for up to 30 years total before it must be redeemed, but there is no benefit to waiting. The bond will not earn any additional interest between year 20 and year 30. The IRS also requires you to report the interest on your tax return in the year the bond reaches final maturity, even if you have not yet cashed it in.

Frequently Asked Questions

Can I buy a Series EE bond for someone else as a gift?

Yes. You can purchase a Series EE bond and register it in another person's name through TreasuryDirect. The person you name as owner is the only one who can redeem it. If you want to give the bond as a gift, you can purchase it and then transfer ownership to the recipient, though the process varies depending on whether you use TreasuryDirect or a bank.

What is the minimum and maximum amount I can invest in Series EE bonds?

Through TreasuryDirect, you can purchase bonds in amounts as small as $25 (you pay $12.50). There is no maximum per purchase, but you are limited to $10,000 per calendar year per person through TreasuryDirect. If you buy through a bank or credit union, the minimums and maximums may differ.

Do I have to report Series EE bond interest every year on my taxes?

No. You can choose to defer federal tax on the interest until you redeem the bond. However, once you elect to report interest annually, you must continue doing so for all your Series EE bonds. If you inherit a Series EE bond and the previous owner was deferring taxes, you can continue deferring or switch to annual reporting.

What happens if I need the money before five years?

You can redeem the bond after one year, but you will lose the last three months of interest as a penalty. For example, if you redeem after two years, you receive interest only through month 21. If you need liquidity and might access the money within five years, a high-yield savings account is a better choice because there is no penalty for withdrawal.