Understanding Series EE Savings Bonds: Definition, Benefits, and Maturity

What is Series EE Bond?

A Series EE Bond is a U.S. Treasury security sold at face value and guaranteed to double in value after 20 years. These low-risk bonds offer a fixed interest rate that compounds semiannually, making them a popular safe haven investment for conservative savers.

Issued electronically via TreasuryDirect, Series EE Bonds support government borrowing while providing tax-deferred interest and accessibility for individual investors.

Key Characteristics

Series EE Bonds combine safety and predictability with tax advantages and accessibility. Key features include:

• Guaranteed Doubling: Bonds double in value after 20 years, backed by the U.S. government regardless of market conditions.
• Fixed Interest Rate: The rate is set at purchase and compounds semiannually, with current yields around 2.50% for recent issues.
• Tax Benefits: Interest is exempt from state and local taxes and federal taxes can be deferred until redemption or maturity.
• Redemption Rules: Redeemable after 1 year; early redemption before 5 years incurs a penalty of forfeiting the last 3 months’ interest (early exercise).
• Purchase Limits: Annual purchase maximum of $10,000 per person, with denominations starting at $25.

How It Works

You buy a Series EE Bond at its face value electronically, and it earns interest that compounds semiannually. The bond’s value grows monthly, but you receive no periodic interest payments until redemption.

If held for 20 years, the bond doubles in value by law; if the fixed interest rate is insufficient, the Treasury makes up the difference. You can redeem the bond anytime after 1 year, but redeeming before 5 years means losing the last 3 months’ interest as a penalty.

Examples and Use Cases

Series EE Bonds are ideal for secure savings goals and educational funding. Common applications include:

• Education Savings: Interest may be tax-exempt if bonds are used for qualified higher education expenses, making them a practical choice for college funds.
• Conservative Portfolios: Investors seeking stability might balance riskier assets like stocks from bond funds or blue-chip companies with guaranteed-return bonds.
• Gifts: Bonds are often gifted to minors for birthdays or graduations, offering a low-maintenance, long-term savings vehicle.
• Bond Market Comparison: When evaluating fixed-income options, consider Series EE Bonds alongside best bond ETFs for diversification.

Important Considerations

Series EE Bonds lack inflation protection, so their returns may lag behind inflation or equities over time. They are best suited for conservative investors prioritizing capital preservation and predictable growth over high yields.

Before purchasing, review current fixed rates and terms on TreasuryDirect, and consider how bonds fit within your overall portfolio, especially relative to instruments priced using the par yield curve. Older Series E bonds no longer earn interest and should be redeemed if held.