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EE Bond vs. CD Rates

Short-term Certificates of Deposit (CDs) are the safe investment with which most investors are familiar, but the tax-deferred EE Bond may be a better option for some.

EE Bond Rates & Taxes, Penalties, and One-Time Adjustments

Even in periods when a CD rate is higher than the rate of an EE Bond, the EE Bond may be a better investment. There are three attributes of EE Bonds that can influence the actual yield of the bond:

  1. Taxes - While EE Bonds grow tax-free until you redeem them, CD interest is taxed annually.
  2. Redemption Penalties - Both CDs and EE Bonds suffer from penalties if redeemed early. For EE bonds, there is a minimum 1 year hold requirement and a penalty of 3 months of interest if redeemed within 5 years.
  3. On-Time Adjustment - After 20 years, a paper EE Bond is guaranteed to double in value to match the face value of the bond certificate, even if the fixed rate has not produced that amount. The Treasury applies a one-time adjustment to the bond to produce the new value.

Initial Rate Comparison

This chart shows the difference between the EE Bond rate and the 6-month Certificate of Deposit (CD) Secondary Market rate at that time for the period of September 1998 to June 2010.

Purchase dateCD RateEE Bond Rate
9/1/19985.33 
10/1/19984.99 
11/1/19985.07 
12/1/19985.01 
1/1/19994.9 
2/1/19994.95 
3/1/19994.98 
4/1/19994.94 
5/1/19995.03 
6/1/19995.31 
7/1/19995.58 
8/1/19995.83 
9/1/19995.89 
10/1/19996.04 
11/1/19995.97 
12/1/19996.07 
1/1/20006.15 
2/1/20006.26 
3/1/20006.36 
4/1/20006.5 
5/1/20006.94 
6/1/20006.91 
7/1/20006.86 
8/1/20006.76 
9/1/20006.68 
10/1/20006.65 
11/1/20006.63 
12/1/20006.3 
1/1/20015.45 
2/1/20015.12 
3/1/20014.74 
4/1/20014.41 
5/1/20014.01 
6/1/20013.74 
7/1/20013.7 
8/1/20013.49 
9/1/20012.84 
10/1/20012.26 
11/1/20012.03 
12/1/20011.9 
1/1/20021.85 
2/1/20021.95 
3/1/20022.16 
4/1/20022.11 
5/1/20021.93 
6/1/20021.92 
7/1/20021.84 
8/1/20021.72 
9/1/20021.74 
10/1/20021.69 
11/1/20021.4 
12/1/20021.36 
1/1/20031.3 
2/1/20031.27 
3/1/20031.2 
4/1/20031.23 
5/1/20031.19 
6/1/20031.02 
7/1/20031.06 
8/1/20031.13 
9/1/20031.13 
10/1/20031.14 
11/1/20031.17 
12/1/20031.17 
1/1/20041.12 
2/1/20041.11 
3/1/20041.09 
4/1/20041.21 
5/1/20041.46 
6/1/20041.76 
7/1/20041.85 
8/1/20041.89 
9/1/20042.04 
10/1/20042.18 
11/1/20042.46 
12/1/20042.66 
1/1/20052.85 
2/1/20053 
3/1/20053.23 
4/1/20053.34 
5/1/20053.443.5
6/1/20053.56 
7/1/20053.8 
8/1/20053.99 
9/1/20054.01 
10/1/20054.32 
11/1/20054.523.2
12/1/20054.62 
1/1/20064.69 
2/1/20064.88 
3/1/20065.01 
4/1/20065.17 
5/1/20065.253.7
6/1/20065.46 
7/1/20065.54 
8/1/20065.44 
9/1/20065.37 
10/1/20065.35 
11/1/20065.333.6
12/1/20065.31 
1/1/20075.34 
2/1/20075.34 
3/1/20075.28 
4/1/20075.31 
5/1/20075.323.4
6/1/20075.36 
7/1/20075.34 
8/1/20075.4 
9/1/20075.33 
10/1/20075 
11/1/20074.853.0
12/1/20074.85 
1/1/20083.71 
2/1/20082.99 
3/1/20082.7 
4/1/20082.86 
5/1/20082.841.4
6/1/20083.09 
7/1/20083.13 
8/1/20083.11 
9/1/20083.82 
10/1/20084.37 
11/1/20082.831.3
12/1/20082.18 
1/1/20091.53 
2/1/20091.75 
3/1/20091.76 
4/1/20091.54 
5/1/20091.040.7
6/1/20090.67 
7/1/20090.5 
8/1/20090.44 
9/1/20090.36 
10/1/20090.31 
11/1/20090.31.2
12/1/20090.3 
1/1/20100.29 
2/1/20100.3 
3/1/20100.34 
4/1/20100.42 
5/1/20100.641.4
6/1/20100.75 


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References

  1. The Federal Reserve System. Federal Reserve Statistical Release. Selected Interest Rates. http://www.federalreserve.gov/releases/H15/data.htm. Accessed July 21, 2010.
  2. Taylor, Don. Invest in Series I or EE bonds? http://www.bankrate.com/finance/investing/invest-in-series-i-or-ee-bonds.aspx Accessed December 1, 2011.
Page last modified 1/31/2012