What an EE bond is and how you buy it

An EE savings bond is a piece of paper or digital record from the U.S. Treasury that you buy for a set price, hold for a period of time, and then cash in for more money than you paid. You buy it at half its face value — so a $100 bond costs you $50. The Treasury guarantees that your bond will reach its full face value in 20 years, meaning your $50 investment becomes at least $100. If you hold it longer, it keeps earning money.

You can buy EE bonds in two ways: as paper bonds through your bank or post office, or as digital bonds through TreasuryDirect, which is the U.S. Treasury's online system. Paper bonds come in denominations of $50, $100, $200, $500, $1,000, and $5,000. Digital bonds can be purchased in any amount from $25 up to $10,000 per calendar year per person.

The main difference between paper and digital is convenience and speed. Digital bonds appear in your account immediately and earn interest right away. Paper bonds take time to arrive in the mail, and you have to store them safely. Most people who buy EE bonds today use TreasuryDirect because it is simpler and you do not have to worry about losing a physical certificate.

Key Takeaways

  • You buy an EE bond at half its face value — a $100 bond costs $50 — and the Treasury guarantees it will be worth $100 after 20 years.
  • EE bonds earn interest every month, and that interest compounds, meaning you earn money on your previous earnings.
  • 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.
  • You can buy digital bonds through TreasuryDirect for any amount from $25 to $10,000 per year, or paper bonds through banks and post offices in set denominations.
  • The interest rate on EE bonds is set by the Treasury and changes every six months, so the rate you get depends on when you buy.

How interest works on EE bonds

EE bonds earn interest, which is money the Treasury pays you for lending them your money. The interest rate is set by the Treasury and announced twice a year — on May 1st and November 1st — and applies to all bonds bought in the six months after that date. The rate changes based on inflation and market conditions, so a bond you buy in May will earn a different rate than one you buy in November.

The interest compounds monthly, which means every month the Treasury calculates interest on the money you originally invested plus all the interest you have already earned. This is why holding an EE bond for a long time makes a real difference — the longer you hold it, the more your money grows. After 20 years, your bond is may provide to be worth at least double what you paid, even if interest rates were very low when you bought it.

You do not receive the interest as a payment while you hold the bond. Instead, the interest stays in the bond and adds to its value. When you cash in the bond, you get the full amount — your original investment plus all the interest that has accumulated.

When you can cash in your bond and what happens if you cash it early

You can cash in an EE bond anytime after you have owned it for one year. If you cash it in between one and five years, you lose the last three months of interest as a penalty. After five years, you can cash it in without any penalty, and you receive the full value including all interest earned.

The penalty for early withdrawal exists because the Treasury wants to encourage people to hold bonds for the long term. If you need the money before five years have passed, you will get back more than you paid, but less than you would have if you waited. For example, if you bought a $50 bond and cashed it in after two years, you might have $52 in the account, but you would lose three months of interest and receive $51.50 instead.

After 30 years, an EE bond stops earning interest. At that point, you should cash it in because holding it longer does not add any value. The Treasury will send you a notice when your bond reaches maturity, but it is your responsibility to keep track of the purchase date.

Where to buy EE bonds and how to set them up

To buy digital EE bonds, you go to TreasuryDirect.gov and create an account. You will need a Social Security number, a valid email address, and a bank account for the money to come from. Once your account is set up, you can buy bonds anytime during the year up to the $10,000 annual limit per person. The bonds appear in your account immediately and start earning interest right away.

To buy paper EE bonds, you visit your bank or post office with cash or a check. You fill out a form, pay half the face value, and the bond is issued to you on the spot. Paper bonds are registered in your name, which means only you can cash them in. If you lose a paper bond, you can request a replacement from the Treasury, but you will need to prove you owned it.

You can also buy EE bonds as a gift for someone else. If you buy them through TreasuryDirect, you set up a separate account for the recipient. If you buy paper bonds as a gift, you can register them in the recipient's name so they own them from the start.

How taxes work on EE bond interest

The interest you earn on an EE bond is subject to federal income tax, but not state or local income tax. You do not pay the tax while you hold the bond — you pay it when you cash the bond in. At that time, you report the interest as income on your federal tax return for that year.

There is one exception: if you use the bond money to pay for may have access to education expenses — tuition and fees at a college, university, or vocational school — you may not have to pay federal tax on the interest. This is called the Education Savings Bond Program. To use this exception, the bond must have been issued after 1989, you must be at least 24 years old when you buy it, and you must use the money for education in the same year you cash the bond. The rules are specific, so if you think you might use this exception, you should read the Treasury's guidance or talk to a tax professional.

The difference between EE bonds and I bonds

The Treasury also sells I bonds, which are similar to EE bonds but work differently. The main difference is how interest is calculated. An EE bond earns a fixed rate set when you buy it, while an I bond earns a combination of a fixed rate plus an inflation rate that changes every six months. This means I bonds protect you against inflation — if prices rise, your I bond earns more interest.

Both EE and I bonds have the same one-year holding requirement and the same three-month interest penalty if you cash them in before five years. Both stop earning interest after 30 years. The choice between them depends on whether you think inflation will be high or low during the time you hold the bond. If you expect inflation to rise, an I bond may be better. If you want a predictable, fixed return, an EE bond is simpler.

What to do with paper bonds you already own

If you have paper EE bonds from years ago, you can still cash them in. You take them to your bank or the Treasury and exchange them for cash. The amount you receive depends on how long you have held them and what the current interest rate is. If your bonds are more than 30 years old, they have stopped earning interest, so you should cash them in as soon as you can.

You can also convert old paper bonds into digital bonds through TreasuryDirect, which makes them easier to track and manage. The conversion does not change the value or the interest rate — it just moves them to an online account where you can see them anytime.

Frequently Asked Questions

Can I lose money on an EE bond?

No. The Treasury guarantees that an EE bond will be worth at least what you paid for it after 20 years, and it will be worth more if you hold it longer. You cannot lose your principal investment, though you can earn less interest if you cash it in early.

What is the current interest rate on EE bonds?

The rate changes every six months on May 1st and November 1st. You can find the current rate on TreasuryDirect.gov. The rate you receive depends on when you buy the bond — it is locked in for the life of the bond.

Can I buy EE bonds for my children?

Yes. You can buy them through TreasuryDirect and register them in your child's name, or you can buy paper bonds as a gift. If the bonds are registered in your child's name, they own them and can cash them in once they turn 18 or reach the age of majority in your state.

What happens if I cash in my bond before one year?

You cannot cash in an EE bond before one year has passed. The Treasury will not allow it. After one year, you can cash it in anytime, but you will lose three months of interest if you do so before five years have passed.

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

No. You only report the interest when you cash the bond in. At that time, you report the total interest earned as income on your federal tax return. Some people choose to report the interest every year instead, which can lower their tax bill in the year they cash it in, but this requires a special election on your tax return.