Key points
- EE bonds are guaranteed to double in value over 20 years.
- The interest your EE bonds earn is subject to federal income tax.
- The best time to cash your EE bonds depends on your financial needs.
Think of how it feels when you reach into the pocket of a coat you haven’t worn since the previous winter and find $20. It’s like your past self left a gift for you to discover in the future. Now picture that surprise growing over time, morphing from a humble bill into a stack of cash. That’s the magic of Series EE savings bonds.
Issued by the U.S. Treasury, EE bonds are the workhorses of the investment world. They aren’t flashy or volatile. Instead, they offer slow, steady and secure growth.
EE bonds are the financial equivalent of planting a sapling today and knowing it will grow into a strong, resilient tree that can weather storms and provide shade when you need it most.
But how do EE bonds work, and do they have a place in your financial garden? As we shine a light on these investments, we’ll also explore how they can lend some balance to your portfolio.
What are Series EE bonds? And how do they work?
EE bonds are U.S. government savings bonds “designed to help investors save in a secure, low-risk product,” said James Allen, founder and certified financial planner at Billpin.com, a hub for personal finance insight. “They work like a loan to the government, which pays you back with interest over time.”
EE bonds earn interest regularly for 30 years or until you cash them. The current interest rate for EE bonds issued between Nov. 1, 2023, and April 30, 2024, is 2.70%. But if you hold an EE bond for 20 years, regardless of the rate, it is guaranteed to double in value.
Think of it this way: You lend Uncle Sam a bit of your hard-earned money, and he not only repays you but gives you a sprinkle of interest for your trust and generosity. This is the essence of Series EE bonds, which offer a safe, dependable way to grow your savings.
How to buy EE bonds
New EE bonds are electronic only. Getting your hands on them is as easy as a few clicks and keystrokes:
- Log in to your TreasuryDirect account. If you don’t have one, creating an account is straightforward and takes just a few minutes.
- Click “BuyDirect.”
- When presented with a choice between EE bonds and I bonds, select the former and then click “Submit.”
- Follow the prompts to fill out the remaining information.
Here’s where it gets exciting. You can buy an electronic EE bond for any amount between $25 and $10,000 to the penny.
Note: There is a limit to how much you can buy in EE bonds. This cap is $10,000 per calendar year. So while the opportunity to invest is generous, it isn’t unlimited.
How to redeem EE bonds
Understanding how to cash in your Series EE bonds is as vital as knowing how to purchase them. After all, an investment’s real value is recognized when it has been converted into spendable currency. So let’s walk through turning your EE bonds back into cash.
You can redeem your EE savings bonds after you’ve owned them for a year. But, like fine wine, EE bonds get better with age. The longer you hold on to them, the more they earn — for up to 30 years.
Note: If you decide to cash in an EE in less than five years, you’ll forfeit the last three months of interest. So these bonds are best suited for those looking to nurture a long-term savings plan.
To learn how much your bond is worth before cashing it in, head to your TreasuryDirect account and check under “Current Holdings.” You can cash any amount of $25 or more to the penny. But if you’re cashing only part of your bond, you must leave at least $25 in your account.
When you’re ready to cash in your electronic EE bonds:
- Log in to your TreasuryDirect account.
- Go to “ManageDirect.”
- Use the link for cashing securities.
How to redeem paper EE bonds
While electronic EE bonds are now standard, you might own paper EE bonds, which have a different cashing process.
You may be able to cash paper EE bonds at a bank where you have an account. But remember that banks vary in how much they will cash at once or if they cash EE bonds at all. Before you go, ask your bank:
- Whether it cashes savings bonds.
- How much it will cash at one time.
- What identification or documents you need to bring.
You can also cash your paper EE bonds through TreasuryDirect, where there is no limit to the value or number of savings bonds you can redeem at once provided they meet the cashing requirements.
To redeem your paper bonds through TreasuryDirect:
- Download and fill out FS Form 1522.
- Have your signature certified if the value of the bonds you are cashing is greater than $1,000.
- Send the form and your bonds to the address listed on FS Form 1522.
Note: Unlike their electronic counterparts, paper EE bonds cannot be partially cashed. They must be cashed for their entire value.
What are EE bonds worth at maturity?
Think of an EE bond as a slow growing tree, steadily adding rings that represent increases in value over 30 years.
How does this arboreal growth occur in the financial realm?
EE bonds accumulate interest monthly. This interest is compounded semiannually, meaning the bond’s interest rate is applied to the new principal every six months. The new principal is the sum of the previous principal and interest earned in the prior six months. So your bond increases in value not only because it collects interest but also because the principal — the base amount generating the interest — swells.
A new EE bond earns a fixed interest rate that is set when it is purchased. It generates this interest for 20 years. After that, the rate or the way the EE bond accrues interest may change.
What does that mean for the bond’s value at maturity?
The government guarantees the bond will double in value in 20 years, even if it must add money to make that happen. That’s quite the assurance. It’s like someone guaranteeing your sapling will grow into a magnificent oak tree in two decades, rain or shine.
In essence, if you patiently tend to your EE bonds for 20 years, your initial investment is guaranteed to double. Nurturing them for 30 years allows them to continue growing, potentially resulting in an even more bountiful financial harvest.
How are EE bonds taxed?
The interest EE bonds accrue is subject to federal income tax. It is not taxed at the state or local level. That means you’re obligated to account for it only on your federal income tax return.
When it comes to the timing of reporting interest for tax purposes, you have two options:
- Deferred interest reporting: You can delay reporting the interest your EE bonds earn until you get it — that is, until you cash the EE bonds or they reach maturity. You will receive a Form 1099-INT for the year you get the interest.
- Annual interest reporting: You can report the interest your EE bonds earn annually. You will not receive a Form 1099-INT every year and therefore must track the accrued interest yourself.
The choice between these two methods comes down to your tax circ*mstances. Consider consulting with a tax professional to make the best decision for your situation.
Are EE bonds worth it?
Whether Series EE bonds are a good investment largely depends on your financial circ*mstances, investment goals and risk tolerance.
“The worth of EE bonds is subjective, like the value of a piece of art,” Allen said. “For some, the security and guaranteed double return at maturity make them a valuable part of their investment portfolio. For others, the long-term nature and relatively low return may not be as attractive. It’s like choosing between a slow cooker and a microwave. Both will cook your food, but the time and taste will vary.”
EE bonds could be a fitting choice if you want a safe, long-term investment where your principal is protected and growth is assured. Their value lies in their low risk, predictable returns and tax benefits.
But if you prioritize liquidity or a higher rate of return or need access to your investment in the short term, EE bonds might be less appealing. They require a long-term commitment to reach their full potential, and cashing them in early could cost you.
As with all investments, consider your options and consult with a financial advisor to make the best decision for your situation.
Frequently asked questions (FAQs)
EE bonds are considered a stable and reliable investment, primarily because the full faith and credit of the U.S. government back them. This assurance of safety, coupled with the fixed interest rate, which is currently 2.70%, makes EE bonds an attractive option for people looking for minimal risk in their investment portfolio.
But Steve Azoury, founder and financial advisor at Azoury Financial, offered an additional perspective. “In today’s rate environment, where fixed rates are in the 5% range, I would prefer a fixed annuity where interest is deferred (for) as long as you want,” he said.
This highlights the importance of weighing your investment options based on the economic landscape and your financial goals. While the security of EE bonds is undeniable, other investments may provide a higher rate of return.
How long you should keep EE savings bonds depends on your financial goals. They earn interest for 30 years or until you cash them. You can cash them after a year. But remember that if you cash them before five years, you’ll forfeit the last three months of interest.
EE bonds do not need to be cashed at maturity. At maturity, they stop earning interest, but the earned interest is not automatically paid out. The cash will remain with the U.S. Treasury until you decide to cash in your EE bonds.
That said, it generally makes sense to redeem your EE bonds at maturity. They no longer accrue value, and the funds can be used elsewhere for further growth.
