What is a Series EE Bond
The Series EE Bond is a non-marketable, interest-bearing U.S. government savings bond that is guaranteed to at least double in value over the initial term of the bond, typically 20 years. Most Series EE bonds have a total interest-paying life that extends beyond the original maturity date, up to 30 years from issuance.
Series EE bond is also known as the Patriot Bond.
BREAKING DOWN Series EE Bond
The Series EE bond is one of two types of savings bonds issued by the US Treasury, the other being the Series I bond. The Series I bonds come with a fixed coupon rate and receive an additional inflation-adjusted interest rate that is adjusted semi-annually. Paper I bonds are no longer sold directly, but can be purchased electronically or indirectly as part of a tax refund. Unlike Series EE bonds, I bonds do not come with a guarantee to at least double in value over the initial term of the bond.
Series EE bonds are government savings bonds that have a guarantee from the US government to at least double in value over the first term of the bond. The initial term usually lasts for 20 years, but most EE bonds have an interest-paying life that extends an additional 10 years past that term. They cannot be bought or sold in the open market, hence, they are classified as non-marketable securities. Series EE bonds issued after May 2005 are assigned a fixed coupon rate; rates are set twice per year on May 1 and November 1, and apply to all issuances for the ensuing six months. Bonds issued after this date increase in value monthly, but interest payments are semiannual.
Paper EE bonds were re-issued as Patriot Bonds after the September 11, 2001 terrorist attacks. They are identical in every way to the paper Series EE Bonds except that any paper bonds purchased through a financial institution after December 10, 2001 have the words "Patriot Bond" printed on the top half of the bond between the Social Security Number (SSN) and the issue date. Financial institutions no longer issue Series EE bonds in paper form, but the paper "Patriot Bonds" can still be cashed or converted to electronic bonds.
The minimum investment that can be made is $25 for an EE bond with a face value of $25. There is also a limit to how much a bond investor can invest in the savings bond; the limit is set at $10,000 each calendar year for each Social Security Number.
Savings bonds must be held at least one year before they can be redeemed by the bondholder. If they are held for less than five years, a penalty of three months' interest will be assessed when the bonds are redeemed. This means that a bond investor will lose the last three months of interest accrued on the bond if he redeems the bond early. Since EE bonds earn interest for up to 30 years, the longer the bonds are held, the more they are worth.
Paper bonds were issued at a 50% discount to par, while bonds purchased electronically (through TreasuryDirect) are purchased at face value; the latter are still guaranteed to be worth twice their original value at first maturity date after 20 years, and pay interest the same way as paper EE bonds.
Series EE bonds are considered ultra-safe, low-risk investments. Interest on Series EE bonds is typically exempt from state and local taxes, and coupon rates are assigned based on a percentage of the long-term Treasury rates at the time of issuance. It is subject to federal tax, however, but only in the year in which the bond matures or is redeemed.
US citizens, official US residents, and US government employees (regardless of their citizenship status) can buy and own EE Bonds. Minors can also own EE Bonds.