What Are EE Bonds?

About Series EE Savings Bonds

Series EE Savings Bonds, or EE Bonds, are a type of savings bond offered by the U.S. Treasury Department. First issued in 1980, the EE Bond replaces the Series E Bond. Series EE Bonds are frequently the type of savings bond people think of when they refer to savings bonds. In addition to EE Bonds, Series I Savings Bonds and TIPS are available to individual investors from the Treasury. Although Series EE Bonds have been produced since 1980, there are several different types of EE Bonds with different attributes depending on when the bond was issued.

Types of EE Bonds

Although all EE Bonds may look the same, there are four types of EE Bonds that have been issued, each with a different method of earning interest. The type of EE Bond can be identified by the issue date of the bond.

Issued 1980 through April 1995 - Bonds purchased in this time earned interest on a graduated scale for 5 years and then started earning interest at either guaranteed minimum rates or market-based rates, whichever is higher. The guaranteed minimum rate was set at the time of purchase while the market rate is based on the 5-year U.S. Treasury securities yields calculated semiannually. The rate is set at 85% of the average of these yields.

Issued May 1995 through April 1997 - EE Bonds issued in this period contain a short-term and long-term rate. The rates are based on the market yields for U.S. Treasury securities. The short-term rate is used for the interest payments for the first five years of the bond's issuance, which is based on 85% of the 3-month averages of 6-month U.S. Treasury Security yields. From years 5 through 17, the bond applies the long-term rate, which is 85% of the 6-month average of five-year U.S. Treasury security yields. EE Bonds will continue to earn interest from 17 years through 30 years at the rates in effect at that time.

Issued May 1997 through April 2005 - These EE Bonds earn interest based on the 5-year U.S. Treasury security yields at 90% of the average yield during the preceding six month period.

Issued May 2005 to present - The most recent type of EE Bonds earn a fixed rate of interest, which is determined by adjusting the market yields of the 10-year Treasury Note by the value of components unique to savings bonds, including early redemption and tax deferral options. The fixed rate is valid for the lifetime of the bond and will not change even when new rates are announced. EE bonds mature after 20 years, but continue to earn interest for an additonal 10 years, making the lifespan of these bonds 30 years.

Patriot Bonds - Some EE Bonds issued after December 10, 2001 are referred to as Patriot Bonds, but are identical to EE Bonds except for the words "PATRIOT BOND" included at the top of the bond. The bonds behave like EE Bonds issued at the same time and have no special attributes that impact interest rates. Some consider the Patriot Bond a gimmick or otherwise a marketing scheme to interest people in funding the anti-terrorism efforts of the country when a Patriot Bond and a regular EE Bond are both as likely to be funding those efforts.

EE Bond Terms

The latest form of EE Bonds earn interest for 30 years at a fixed rate of interest. The paper version of these bonds mature after 20 years, at which point they are guaranteed to double in value. In the event the bond has not doubled in value after 20 years due to a low fixed rate, the U.S. Treasury will make a one-time adjustment at maturity to increase the value to ensure it has doubled and match the face value on the bond certificate. Electronic EE Bonds are issued at face value and reache maturity immediately. EE Bonds are accrual-type securitues, meaning interest is added monthly and paid when the bond is redeemed. Newly issued Series EE and I Savings Bonds receive new rates twice a year, on May 1 and November 1. Savings bonds must be held for a minimum on one year and will suffer a three-month interest penalty if redeemed within 5 years.

EE Bond Risk

EE Bonds are very low risk investments. Unlike corporate or municipal bonds, savings bonds are backed by the whole of the US government and are therefore very stable. All savings bonds products are designed to retain value and never decrease, so you will never lose money with savings bonds. While risk are reward are typically associated with investing, savings bonds frequently offer better rates than products of a similar risk profile, making them an ideal way to save for the long term with almost no risk.

Related Topics

• Current EE Bond Rates
• EE Bonds Compared to Other Investments
• Buying EE Bonds