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Understanding EE Savings Bonds and How They Work

EE Savings Bonds are debt securities issued by the U.S. Department of the Treasury. When you own an EE bond, you have loaned money to the federal government, and in return, the government pays you interest over time. These bonds have been available to the public since 1941 and remain a popular savings tool for many Americans.

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EE bonds purchased after May 2003 are sold at face value. This means if you buy a $100 EE bond, you pay $100 upfront. The bond then earns interest monthly, though interest is only paid when you redeem the bond. The current interest rate for EE bonds is set by the Treasury and adjusts every six months on May 1st and November 1st. As of recent years, EE bonds have earned between 0.10% and 5.15% annually, depending on when they were purchased and which rate period applies.

One significant feature of EE bonds is the 20-year final maturity period and extended maturity of 30 years total. This means the government guarantees that if your bond has not earned enough interest to double in value within 20 years, the Treasury will make a one-time adjustment so that your bond's value equals double your purchase price. For example, a $100 bond purchased 20 years ago would be worth at least $200 today, even if interest rates were very low during that period.

EE bonds are held in electronic form through TreasuryDirect, the Treasury's online platform. You cannot purchase physical paper EE bonds anymore—they are maintained as digital records. This makes tracking your bonds and monitoring their value straightforward, as you can log into your TreasuryDirect account at any time to see your current holdings and their current redemption values.

Practical Takeaway: EE bonds are a low-risk savings product backed by the U.S. government. Understanding their basic structure—that you pay face value upfront, earn interest over time, and can redeem for a guaranteed minimum value—helps you know what to expect from these bonds and why they appeal to conservative savers.

The Redemption Process and Basic Requirements

Redeeming an EE Savings Bond involves converting it from a security you hold into cash. The process itself is relatively straightforward and can be completed online through TreasuryDirect if you own electronic bonds. The redemption value of your bond changes monthly based on the interest it has earned. You can check your bond's current value any day by logging into your TreasuryDirect account and viewing your holdings.

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To redeem a bond through TreasuryDirect, you will need an account and access to the online system. You log in, select the bond or bonds you want to redeem, and confirm the transaction. The funds are then transferred to a designated bank account, usually within a few business days. If you own paper EE bonds issued before 2003, you can redeem them at most banks or credit unions, though the process takes longer and involves more paperwork.

One important consideration before redeeming is the timing related to interest accrual. EE bonds earn interest on the first day of every month. If you redeem your bond before the first of the month, you miss that month's interest earnings. Planning your redemption for after the first of the month means you capture one additional month of interest on your bond.

Another factor to understand is the redemption penalty for bonds held less than five years. If you redeem an EE bond within the first five years of ownership, you lose the last three months of interest. This is an important cost to consider if you think you might need access to your money soon. After five years, you can redeem the bond without this penalty, though you still lose the current month's interest if you redeem before the first of the month.

There are no restrictions on who can redeem a bond they own, and there are no limits on how many bonds you can redeem at once. You can redeem one bond or many bonds in a single transaction through TreasuryDirect.

Practical Takeaway: Know that redeeming your bonds takes just a few days through TreasuryDirect, but timing matters. Redeeming after the first of the month and after holding bonds for at least five years means you keep more of your earned interest.

Tax Considerations and Reporting Your Bond Interest

Interest earned on EE Savings Bonds is subject to federal income tax, though it may not be subject to state or local income taxes in many states. This is a critical point because many people do not realize they owe taxes on their bond earnings until they redeem the bonds or report the interest to the IRS.

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You have two options for reporting interest from EE bonds: annual reporting or deferred reporting. With annual reporting, you report the interest your bonds earn each year on your tax return, even though you have not yet redeemed the bonds. This method spreads the tax liability across multiple years. With deferred reporting, you do not report any interest until you actually redeem the bond, at which point you report all accumulated interest on your tax return for that year. Many people choose deferred reporting because they do not have to pay taxes until they receive the money.

When you redeem an EE bond, you should receive a Form 1099-INT from the Treasury showing the interest earned. However, you will need to track your bonds' purchase dates and values carefully to ensure accurate reporting. Some bonds purchased decades ago may have complex interest histories, especially if they were purchased at different times and rates. Keeping detailed records of your bonds, including their purchase dates, original purchase prices, and redemption dates, makes tax reporting much simpler.

The interest income from EE bonds is included in your adjusted gross income and taxed at your ordinary income tax rate, not at the capital gains rate. This means the tax can be significant if you redeem a large number of bonds in a single year. Some people space out their redemptions across multiple years to keep their taxable income lower and potentially remain in a lower tax bracket.

If you use EE bond interest to pay for qualified education expenses, you may be able to exclude some or all of that interest from your taxable income. This is called the Education Savings Bond Program exclusion. The rules are specific—the bonds must be issued to someone age 24 or older, the education expenses must be at a school, and you must meet certain income limits. This is one situation where using bond interest for a specific purpose can create a tax benefit.

Practical Takeaway: Plan for the tax impact of redeeming your bonds. Choose your reporting method before you redeem, keep records of purchase dates and values, and consider spacing redemptions across multiple years if you own many bonds. If you plan to use bond interest for education, investigate the education exclusion rules.

Organizing and Tracking Your Bond Portfolio

Many people own multiple EE bonds purchased over many years, sometimes without clear records of what they own or where those bonds are held. Finding and organizing your bonds is an important first step before you consider redemption. You may own bonds in TreasuryDirect (electronic), physical paper bonds, or both.

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If your bonds are in TreasuryDirect, you can log into your account online to see a complete list of all your holdings. Your account will show the purchase date, purchase price, series, current value, and maturity date for each bond. This is the easiest scenario because all your information is in one digital place, organized and updated monthly. You can print or export this information for your records.

If you own paper EE bonds, you will need to locate them physically and document their information yourself. Paper bonds typically have the face value printed on them along with an issue date. You can track this information in a simple spreadsheet or notebook. To find the current value of a paper bond, you can use the Treasury's Savings Bond Calculator on the TreasuryDirect website. You enter the series, denomination, and issue date, and the calculator tells you the bond's current value.

Creating a simple inventory of your bonds is valuable for multiple reasons. First, it helps you understand your total savings and plan for when you might need the money. Second, it ensures you do not lose track of bonds, which can happen if they are stored in a safe deposit box or left with family members. Third, it makes tax reporting easier because you have all the information you need at hand. Your inventory should include the bond series, denomination, issue date, whether it is electronic or paper