An EE savings bond is a government-issued bond you buy at half its face value and cash in for the full amount later

When you buy an EE bond, you pay $50 for a bond with a $100 face value. The bond earns interest over time, and when you cash it in, you get both your original $50 plus the interest that has accumulated. The U.S. Treasury issues EE bonds, and they are backed by the federal government.

EE bonds come in two forms: paper bonds (which you buy through your bank or employer) and digital bonds (which you buy directly from TreasuryDirect.gov). Paper bonds are issued at a discount — you pay half the face value upfront. Digital bonds work the same way: you pay $25 to buy a $50 bond, or $50 to buy a $100 bond.

The interest rate on EE bonds is set by the Treasury and changes every six months. The current rate applies to all new bonds purchased during that six-month period. Once you own a bond, its rate is locked in for the life of the bond.

Key Takeaways

  • You purchase an EE bond at half its face value — $50 for a $100 bond — and the difference is made up by interest over time.
  • EE bonds are issued by the U.S. Treasury and backed by the federal government, making them one of the safest places to store money.
  • Interest rates are set every six months and locked in for the life of your bond once purchased.
  • EE bonds have a 30-year maturity period, but you can cash them in after one year, though you lose the last three months of interest if you cash in before five years.
  • Interest earned on EE bonds is not taxed at the state or local level, and federal tax can be deferred until you cash the bond.

How EE bonds earn interest and reach face value

An EE bond is may provide to reach its face value in 20 years. If interest rates are low and the bond has not earned enough to reach face value by year 20, the Treasury makes up the difference in a single payment. After 20 years, the bond continues to earn interest for another 10 years, up to a total of 30 years.

The interest compounds semiannually, meaning the Treasury adds interest twice a year. You do not receive the interest as a payment — it stays in the bond and earns interest itself. This compounding is why a $50 bond eventually becomes worth more than $50.

The interest rate changes every six months on May 1 and November 1. The new rate applies only to bonds purchased during that six-month period. If you bought a bond in May at 2.5%, that rate stays with your bond for its entire 30-year life, even if rates drop to 1% later.

When you can cash in an EE bond and what happens to your money

You can cash in an EE bond after one year of ownership. However, if you cash it in before five years have passed, you lose the last three months of interest. After five years, you can cash it in without penalty and receive the full accumulated value.

You cash in EE bonds through your bank (if you own paper bonds) or through TreasuryDirect.gov (if you own digital bonds). The process takes a few business days. The Treasury sends you a check or deposits the money directly into your bank account.

Once you cash in a bond, it stops earning interest. The interest you received is subject to federal income tax in the year you cash it in, though you can choose to report the interest each year instead of waiting until you cash the bond.

Tax treatment of EE bond interest

Interest earned on EE bonds is exempt from state and local income tax. You only owe federal tax on the interest. You have two choices: report the interest when you file your federal tax return in the year you cash the bond, or report the interest each year as it accrues.

If you use EE bond proceeds 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. Your income must fall below certain limits, and the bonds must have been issued after 1989 when you were at least 24 years old.

You do not owe tax on the interest until you cash the bond (or the bond matures after 30 years). This tax deferral can be useful if you plan to cash the bond in a year when your income is lower.

Paper bonds versus digital bonds

Paper EE bonds are physical certificates you can hold in your hand. You buy them through your bank or employer savings plan, usually in denominations of $50, $75, $100, $200, $500, and $1,000. You keep them in a safe place — a safe deposit box, home safe, or filing cabinet. If a paper bond is lost, stolen, or destroyed, you can file a claim with the Treasury to replace it, but the process takes time.

Digital bonds exist only in your TreasuryDirect account online. You buy them in any amount from $25 up, in any increment (for example, $47.50 or $123.75). You access them by logging into your account. Digital bonds cannot be lost or stolen in the physical sense, though your account can be hacked if your password is weak. You can print a statement showing your bonds, but you cannot hold a physical certificate.

Both types earn interest at the same rate during the same six-month period. The main difference is convenience: digital bonds are easier to track and harder to lose, while paper bonds do not require an online account.

Who should consider buying EE bonds

EE bonds work best for people who have money they will not need for at least five years and want a safe place to store it. Because the interest rate is modest compared to other investments, they are not meant to be your primary investment vehicle.

EE bonds are useful if you want to avoid stock market risk, prefer a may provide return, or want to set aside money for education expenses and take advantage of the tax exclusion. They are also useful if you want to keep some money in a very safe, government-backed form that cannot be lost to a bank failure.

EE bonds are less useful if you need access to your money within a year, if you are in a high tax bracket and want to minimize tax liability, or if you are looking for returns that beat inflation significantly. The interest rate on EE bonds has historically been lower than the inflation rate, meaning the purchasing power of your money may decline over time.

How to buy EE bonds

To buy digital EE bonds, create an account at TreasuryDirect.gov. You will need a Social Security number, a valid email address, and a bank account for funding your purchases and receiving proceeds. Once your account is set up, you can buy bonds immediately in any amount from $25 up.

To buy paper EE bonds, visit your bank or credit union and ask about their savings bond program. Not all banks sell paper bonds anymore, so call ahead. You can also buy them through your employer's payroll savings plan if your employer offers one. With payroll savings, a small amount is deducted from each paycheck and used to buy bonds.

There is a $10,000 annual limit on digital EE bonds per person per calendar year. Paper bonds have no annual limit, but they are harder to find. You can own both digital and paper bonds at the same time.

Frequently Asked Questions

What happens to an EE bond after 30 years?

After 30 years, an EE bond stops earning interest and is considered matured. You should cash it in at that point, because holding it longer gains you nothing. If you do not cash it in, it remains in your account, but no additional interest accrues.

Can I lose money on an EE bond?

No. EE bonds are may provide to reach their face value in 20 years. The worst-case scenario is that you earn very little interest if rates are low, but you will never receive less than you paid for the bond.

Can I cash in someone else's EE bond?

Only the person whose name is on the bond can cash it in, or their legal representative if they are deceased or incapacitated. You cannot cash in a bond that belongs to someone else, even if you have permission.

What is the difference between EE bonds and I bonds?

I bonds have interest rates that adjust every six months based on inflation, so they protect you if prices rise. EE bonds have fixed rates that do not change. I bonds have a higher minimum holding period before you can cash them without penalty (five years versus one year for EE bonds).

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

No, you can wait until you cash the bond to report the interest. However, you have the option to report it each year if you prefer. Once you choose to report interest annually, you must continue doing so for all your bonds.