EE Bonds are savings bonds issued by the U.S. Treasury that you buy at half their face value and cash in later for the full amount plus interest

When you buy an EE bond, you pay half of what it will eventually be worth. For example, you pay $50 for a bond with a $100 face value. The bond earns interest over time, and when you cash it in, you receive the full value plus all the interest that has accumulated. The Treasury guarantees that an EE bond will at least double in value over 20 years, even if interest rates are very low.

EE bonds are issued only in electronic form now—you cannot buy paper bonds anymore. You purchase them through TreasuryDirect, the official government website where you set up an account and buy bonds directly from the Treasury. The bonds sit in your account and earn interest automatically; you do not have to do anything once you own them.

Key Takeaways

  • You purchase EE bonds at 50 percent of their face value, so a $100 bond costs $50 upfront.
  • The Treasury guarantees your bond will double in value within 20 years, meaning you earn at least 3.5 percent annual interest on average.
  • Interest compounds semiannually, meaning the Treasury adds interest twice per year and that interest itself earns interest.
  • You can cash in an EE bond anytime after one year, but if you cash it in before five years have passed, you lose the last three months of interest as a penalty.
  • EE bonds are backed by the full faith and credit of the U.S. government, so there is no risk of losing your principal.

How interest accrues on your EE bond

EE bonds earn interest at a rate set by the Treasury every six months. The current rate applies to all bonds purchased during that six-month period; older bonds keep the rate they were issued at. The Treasury announces new rates on the first business day of May and November each year, and those rates take effect immediately for new purchases.

Interest compounds semiannually, which means the Treasury calculates interest on your original investment plus any interest already earned, and adds it all to your bond value. This compounding happens automatically—you do not have to reinvest or take any action. Over decades, compounding makes a significant difference in how much your bond grows.

You can see your bond's current value anytime by logging into your TreasuryDirect account. The value shown includes all interest earned to date. The bond continues to earn interest for up to 30 years from the date of issue, after which it stops earning and you should cash it in.

When you can cash in your EE bond and what happens if you do

You can cash in an EE bond anytime after you have owned it for one year. If you cash it in before five years have passed, the Treasury deducts the last three months of interest as a penalty. So if you own the bond for two years and then cash it in, you lose three months of interest earnings. This penalty exists to discourage early withdrawal.

After five years, you can cash in your bond without any penalty. At that point, you receive the full current value of the bond, which includes all interest earned. The money goes directly to your bank account, usually within a few business days.

If you hold the bond for the full 30-year term, it stops earning interest but remains in your account. You can still cash it in at any time after that, but you will not earn any additional interest. Most people cash in their bonds once they stop earning, since there is no benefit to holding them longer.

The Treasury's may provide and how it protects your money

The Treasury guarantees that an EE bond will double in value over 20 years. This means that even if interest rates fall and the Treasury's rate drops to nearly zero, your bond will still reach at least double your purchase price by the 20-year mark. If market interest rates are high enough that your bond would naturally grow beyond double, you keep that extra growth. The may provide is a floor, not a ceiling.

This may provide exists because EE bonds are backed by the full faith and credit of the U.S. government. You cannot lose your principal investment. The worst-case scenario is that interest rates stay very low and your bond grows slowly, but it will still reach the may provide doubling point within 20 years.

Tax treatment of EE bond interest

Interest earned on EE bonds is subject to federal income tax, but not to state or local income tax. You do not pay the tax when the interest is earned—you pay it when you cash in the bond. At that point, you report the interest as income on your federal tax return for that year.

There is one major exception: if you use the bond proceeds to pay for may have access to education expenses, you may be able to exclude the interest from your taxable income entirely. may have access to expenses include tuition and fees at an accredited college, university, or vocational school. You must meet certain income limits and other requirements to use this exclusion, so check the Treasury's rules if education funding is your goal.

You can also choose to report the interest each year as it accrues, rather than waiting until you cash in the bond. This approach spreads the tax burden over many years instead of creating a large tax bill in the year you cash in. You make this election on your tax return and must stick with it for all your EE bonds.

How to buy EE bonds through TreasuryDirect

To buy EE bonds, you must create an account on TreasuryDirect.gov, the official Treasury website. You will need a Social Security number, a valid email address, and a U.S. bank account. The account setup takes about 15 minutes and is free.

Once your account is open, you can buy bonds in any amount from $25 to $10,000 per calendar year. You can buy them all at once or spread purchases throughout the year. The money is deducted from your bank account, and the bonds appear in your account immediately. You can then view them, track their value, and manage them entirely online.

You can also set up a program called SmartExchange, which automatically reinvests your bond proceeds into new bonds when you cash them in. This is useful if you want to keep money in bonds without having to remember to buy new ones each time one matures.

EE bonds versus other Treasury bonds and savings options

EE bonds are one of several Treasury savings products. I bonds, another popular option, protect against inflation by adjusting their interest rate based on inflation data. Series I bonds may be better if you are concerned about rising prices eroding your savings. However, I bonds have different rules about when you can cash them in and what penalties apply.

Treasury bills, notes, and bonds are also issued by the Treasury but work differently. They are sold at auction, their interest rates are set by market demand, and they are often bought and sold on the secondary market. EE bonds, by contrast, are not traded—you buy them directly from the Treasury and cash them in directly to the Treasury.

High-yield savings accounts and money market accounts offer more flexibility and easier access to your money, but they typically earn less interest than EE bonds over long periods. The trade-off is that EE bonds lock your money away for at least one year and penalize early withdrawal before five years, while savings accounts let you withdraw anytime without penalty.

Frequently Asked Questions

What is the current interest rate on EE bonds?

The Treasury sets EE bond rates twice per year, on the first business day of May and November. The rate you receive depends on when you purchase the bond. You can find the current rate on TreasuryDirect.gov. Rates have varied widely over the years, from near zero during low-interest periods to over 5 percent in recent years.

Can I buy EE bonds for someone else, like a child or grandchild?

Yes, you can buy EE bonds as gifts. You set up the account in the other person's name and Social Security number, and you fund it from your bank account. Once the bond is issued, the other person owns it and can manage it themselves once they reach adulthood. This is a popular way to save for children's education or future needs.

What happens if I need the money before five years?

You can cash in your bond anytime after one year, but you will lose the last three months of interest as a penalty if you cash it in before five years have passed. After five years, there is no penalty. If you need the money urgently, you can cash in the bond, but be aware that you will receive less than you would if you waited the full five years.

Do EE bonds expire or stop earning interest?

EE bonds stop earning interest after 30 years from the date of issue. At that point, the bond has reached its final value and will not grow anymore. You should cash it in once it stops earning, since holding it longer provides no benefit. You can cash it in anytime after it stops earning without penalty.

Can I lose money on an EE bond?

No. Your principal is may provide by the U.S. government, and the bond is may provide to at least double in 20 years. The worst case is that interest rates stay very low and your bond grows slowly, but you will never receive less than you paid for it. This makes EE bonds one of the safest investments available.