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 later for the full amount

When you buy a Series EE bond, you pay one price upfront—say, $50—and the bond has a face value of $100. That $100 is what you will receive when you cash it in, assuming you hold it long enough. The difference between what you paid and what you get back is your earnings. The Treasury guarantees that a Series EE bond will at least double in value within 20 years, which means a $50 bond will be worth at least $100 after two decades, even if interest rates stay very low.

Series EE bonds are issued by the U.S. Department of the Treasury, not by a bank or investment company. You buy them directly from TreasuryDirect, the government's online platform, or through a bank or broker. They are backed by the full faith and credit of the United States government, which means there is no risk that you will lose the money you put in.

Key Takeaways

  • You buy a Series EE bond at half its face value—a $100 bond costs $50—and the difference between what you pay and what you receive is your earnings.
  • The Treasury guarantees that your bond will at least double in value within 20 years, but you can hold it for up to 30 years and earn more.
  • Interest accrues monthly but is only paid when you cash in the bond, and you do not owe federal income tax on the earnings until that moment.
  • You can buy Series EE bonds in paper form through a bank or broker, or electronically through TreasuryDirect, which is usually faster and cheaper.
  • If you cash in a Series EE bond before five years have passed, you lose the last three months of interest as a penalty.

How the earnings work and when you receive them

A Series EE bond earns interest every month, but you do not see that money until you cash in the bond. The interest rate is set by the Treasury and changes every six months—in May and November. The rate you receive depends on when you bought the bond; bonds purchased in the same six-month period all earn the same rate for the life of the bond.

The earnings are accrued, meaning they accumulate and compound over time. If your bond earns 2.5 percent per year, that interest gets added to the bond's value each month, and the next month's interest is calculated on the new, higher amount. This compounding effect is why the Treasury can may provide that your bond will at least double—even at very low interest rates, 20 years of compounding will get you there.

You do not owe federal income tax on the interest until you cash in the bond. This tax deferral is one reason some people use Series EE bonds for long-term savings. When you finally cash in the bond, you will receive a 1099-INT form showing the total interest earned, and you will report that on your federal tax return for that year.

The difference between paper and electronic Series EE bonds

You can own a Series EE bond in two forms: paper or electronic. Paper bonds are physical certificates that you hold in your hand. You buy them through a bank or broker, usually for a small fee. Electronic bonds exist only as a record in TreasuryDirect, the Treasury's online system, and you buy them directly with no middleman.

Electronic bonds are usually the better choice if you have internet access and are comfortable managing accounts online. There is no fee to buy them, and you can purchase them in any amount from $25 up to $10,000 per calendar year per person. Paper bonds come in fixed denominations—$50, $100, $200, $500, $1,000, and $5,000—and you may pay a fee to the bank or broker selling them to you.

Both types work the same way once you own them: they earn interest at the same rate, they mature in the same timeframe, and they are backed by the same government may provide. The main difference is convenience and cost. If you want to cash in an electronic bond, you log into TreasuryDirect and request the redemption; the money arrives in your bank account within a few business days. If you hold a paper bond, you take it to a bank and they handle the redemption for you, which may take longer.

When you can cash in a Series EE bond without penalty

You can cash in a Series EE bond at any time after you own it, but there is a penalty if you do so within the first five years. If you redeem the bond before five years have passed, you lose the last three months of interest. This means if you bought a bond in January and cashed it in in March of the following year, you would receive the interest earned through September of the previous year, not through March.

After five years, you can cash in the bond with no penalty and receive all the interest earned to date. Many people hold Series EE bonds for the full 20 or 30 years to maximize earnings, but you are not required to. The bond will continue to earn interest for up to 30 years from the date of purchase, after which it stops earning and you should cash it in.

Tax treatment and education savings options

The interest on a Series EE bond is subject to federal income tax, but not to state or local income tax. You can defer paying federal tax until you cash in the bond, or you can choose to pay tax each year as the interest accrues—most people defer and pay when they redeem.

There is a special tax break available if you use Series EE bond earnings to pay for may have access to education expenses. If you meet certain income limits and use the proceeds to pay tuition or fees at an accredited school, you may be able to exclude the interest from your taxable income entirely. This is called the Education Savings Bond Program. The income limits change each year, and you must have been at least 24 years old when you purchased the bond. This option is worth exploring if you are saving for a child's or grandchild's education, but the rules are specific and you should verify your situation before relying on it.

How Series EE bonds compare to other savings options

Series EE bonds are one of several savings products offered by the Treasury. Series I bonds are similar but are designed to protect against inflation—they earn a fixed rate plus an inflation rate that changes every six months. Series I bonds have higher current interest rates in inflationary periods, but they also have stricter rules about when you can cash them in without penalty.

Compared to a regular savings account at a bank, Series EE bonds typically offer higher interest rates over the long term, but your money is locked in and you cannot access it without penalty for five years. A high-yield savings account gives you more flexibility and FDIC insurance, but the interest rate may be lower. Treasury bills and Treasury notes are other government-backed options that mature in shorter timeframes—from a few weeks to ten years—and may offer different rates depending on current market conditions.

Series EE bonds make sense if you have money you do not need for at least five years and want a may provide return with no risk. They do not make sense if you might need the money sooner, because the early redemption penalty will eat into your earnings.

How to buy a Series EE bond

To buy an electronic Series EE bond, you create an account on TreasuryDirect.gov, verify your identity, and link a bank account. You can then purchase bonds online in any amount from $25 to $10,000 per calendar year. The process takes about 15 minutes, and the bond is issued immediately.

To buy a paper Series EE bond, you visit a bank or broker and ask for one. You pay the face value divided by two—so $50 for a $100 bond—plus any fee the institution charges. The bank orders the bond from the Treasury on your behalf, and you receive the physical certificate in the mail, usually within a few weeks.

You can also buy Series EE bonds as a gift. If you purchase a bond in someone else's name, they become the owner and can cash it in whenever they choose. Some people buy them for children or grandchildren as a long-term savings tool.

Frequently Asked Questions

Can I lose money on a Series EE bond?

No. The Treasury guarantees that your bond will be worth at least what you paid for it, and it will at least double within 20 years. Even if interest rates fall to zero, you will never receive less than your original purchase price when you cash it in.

What happens if I cash in my bond before five years?

You lose the last three months of interest as a penalty. For example, if you bought a bond in January and cashed it in after two years, you would receive interest only through October, not December. After five years, there is no penalty.

Can I buy Series EE bonds for someone else?

Yes. You can purchase a bond in someone else's name, and they become the owner. They can cash it in whenever they want, though the early redemption penalty still applies if they do so within five years of the purchase date.

Do I have to report the interest every year?

No, not unless you choose to. You can defer federal income tax on the interest until you cash in the bond. When you redeem it, you will receive a 1099-INT form and report the total interest on your tax return for that year.

What is the difference between a Series EE bond and a Series I bond?

Series I bonds are designed to protect against inflation and earn a fixed rate plus an inflation rate that changes every six months. Series EE bonds earn a fixed rate set when you buy them. Series I bonds currently offer higher rates in inflationary periods, but they have stricter rules about early redemption.