What are EE Bonds?

So you have come with the question, “What are EE Bonds?” An EE bond is a US bond issued by the United States Treasury. That being the case an EE Bond is backed by the full faith and credit of the US Government. They have almost no default risk and are considered some of the safest bonds that you are able to purchase.

EE Bonds can be purchased online by going to the US Treasury website. At that website you can login and purchase the bonds directly. The minimum amount required to purchase an EE Bond is $25. The other denominations available to purchase are $75, $100, $200, $500, $1000, $5000, and $10,000.

An EE Bond is guaranteed to at least double after a 20 year holding period. If an EE bond you hold has not doubled after 20 years then the US Treasury will make a one time adjustment to remedy the issue. The exact interest that EE Bonds pay is dependent on the year they where issued.

If you purchased an EE bond between May 1997 and 30 April 2005 it earns a variable rate of return. That means that the amount of interest is going to change every 6 months. In May and November the Treasury announces a new yield and that is the amount you these bonds will pay. Bonds issued after 30 April 2005 will earn a fixed rate of interest. This means that these new bonds will act exactly like a CD. They will pay the same amount of interest until they mature.

EE Bonds must be held for at least a one year period. After that time you can sell them at anytime. However, if sold before holding for 5 years you will forfeit 3 months of interest payments. After the 5 year period is up no penalty exists for redeeming them. An EE Bond will pay interest for a period of up to 30 years.

When redeeming EE Bonds you will have to pay taxes, at your marginal rate, to the Federal Government. During the time period that you are holding the bond it acts like a tax free account as you do not pay any taxes until redemption. If you are redeeming an EE Bond to pay for education expenses then it is tax free with a few restrictions.

Hopefully now you have an idea of what EE Bonds are and can answer the question, “What are EE Bonds?”