Subject: Bonds - U.S. Savings Bonds

Last-Revised: 28 June 2010
Contributed-By: Art Kamlet (artkamlet at, Gordon Hamachi, Rich Carreiro (rlcarr at, M. Persina, David Capshaw, Paul Maffia (paulmaf at, J. Zinchuk (jzinchuk at, Tom Weishaar, Chris Lott (contact me)

This article describes US Savings Bonds issued by the US Treasury, and discusses how they can be purchased or redeemed. Because the US Treasury changes the rules for these bonds periodically, this article also gives some information about determining the yields of bonds issued over the past 30 years.

US Savings bonds are obligations of the US government. Interest paid on these bonds is exempt from state and local income taxes. Savings Bonds are not negotiable instruments, and cannot be transferred to anyone at will. They can be transferred in limited circumstances, and there could be tax consequences at the time of transfer.

US Savings bonds can be purchased from commercial banks or (naturally) over the internet. Most commercial banks act as agents for the

Treasury; they will let you fill out the purchase forms and forward them to the Treasury. You will receive the paper bonds in the mail a few weeks later. See the foot of this article for the web site that allows on-line purchases. Paper bonds can also be purchased by payroll deduction at many employers, but the U.S. Treasury is ending that option as of 1 January 2011.

Savings bonds can be redeemed (cashed in) at many banks or directly with a branch of the Federal Reserve Bank. Using your bank, credit union, or savings and loan is probably the fastest way to cash a bond, but be certain to call ahead to ask (you might need to bring certain documentation). In some cases, the bank may send the bonds to the Fed, which will slow things down. If your bank will not cooperate, contact the appropriate Fed branch to redeem bonds by mail or via the web (see links at the end of this article).

At the time of purchase, a bond can be registered to a single person ("single ownership"), registered to two people ("co-ownership"), or can be registered to a primary owner and a beneficiary ("beneficiary"). In the case of co-ownership, either named individual can do whatever they like with the bond without consent for the other person; if one dies, the other becomes the single owner. In the case of beneficiary registration (bond is marked POD for "payable on death"), the primary owner controls the bond, and ownership (including the responsibility of paying taxes on the interest) passes to the beneficiary if the primary owner dies.

Interest from Savings Bonds can excluded if used to pay higher education expenses such as college tuition. Please see the article elsewhere in the FAQ for more details.

If your Savings Bonds are lost, stolen, mutilated, or destroyed, give prompt notice of the facts to the Department of the Treasury, Bureau of the Public Dept, Parkersburg, WV 26106-1328, and a list, if possible, of the serial numbers (with prefix and suffix letters), the issue dates (month and year) and the denominations of the bonds. Show all names and addressed that could have appeared on the bonds, along with the owner's Social Security number, and whether the bond numbers and issue dates are known. The more information that you are able to provide, the quicker the Treasury will be able to replace your bonds.

Two types of US Savings Bonds are offered, namely Series EE Bonds and I Bonds. The I Bond was introduced in 1998 and is indexed for inflation. The Treasury plans to sell both types of bonds on an ongoing basis; there are no plans for one or the other to be phased out. Different rules and regulations apply to these two types of bonds, as summarized next.

I Bonds

I Bonds are issued on paper and electronically. I Bonds are purchased at face value or denomination. So you purchase a $100 I Bond for $100.

The minimum purchase is $50 for a bond issued on paper, or $25 for a bond purchased electronically via Treasury Direct. As of 1 Jan 2008, the maximum annual purchase is $5,000 in paper I bonds and another $5,000 in I bonds issued electronically by Treasury Direct, for a total annual limit of $10,000 per social security number. This is independent of the limit on EE bonds (see below).

I Bonds are an accrual-type security. In English, this means that interest is added to the bond monthly. The interest is paid when the bond is cashed. An I Bond earns interest for as long as 30 years. The interest accrues on the first day of the month, and is compounded semiannually. The earnings rate of an I Bond is determined by a fixed rate of return plus a semiannual inflation rate. The fixed rate (as the name might imply) remains the same for the life of an I Bond. The semiannual inflation rate (the bonus) is announced each May and November, and is based on the Consumer Price Index (CPI), as calculated by the wizards at the Bureau of Labor Statistics.

I Bonds issued after 1 February 2003 must be held for at least 12 months before they can be cashed (bonds issued before then could be cashed anytime after 6 months). If an investor cashes an I Bond within the first five years, the investor is penalized by losing three months worth of interest. For example, if you cash an I Bond after exactly twelve months, you will receive just nine months worth of interest. This "feature" of the I Bond is supposed to encourage long-term investment.

Interest on an I Bond can be deferred until the bond is cashed in, or if you prefer, can be declared on your federal tax return as earned each year. When you cash the bond you will be issued a Form 1099-INT and would normally declare as interest all funds received over what you paid for the bond (and have not yet declared). This is what they mean by deferring taxes.

Ownership of I bonds can be transferred (i.e., the bonds can be reissued), but many more restrictions are placed on transferring these bonds as compared to Series EE bonds. Public Debt Forms 5386 and 5387 have instructions about what's possible. Briefly, a co-owner can be added, a beneficiary can be removed, or ownership can be changed due to divorce.

Series EE Bonds

Series EE bonds are issued on paper and electronically. Paper bonds are purchased at half their face value or denomination; for example, you purchase a $100 Series EE Bond issued on paper for $50. Electronic bonds are purchased at face value; for example, you purchase a $100 Series EE Bond electronically via Treasury Direct for $100.

The minimum purchase is $25 for a $50 paper bond or $25 for a $25 electronic bond from Treasury Direct. The maximum annual purchase is $5,000 in paper bonds and another $5,000 in Treasury Direct bonds, as counted by social security number, for an annual limit of $10K. This is independent of the limit on I bonds (see above).

Series EE Bonds earn market-based rates that change every 6 months. There is no way to predict when a Series EE bond will reach its face value. For example, a Series EE Bond earning an average of 5% would reach face value in 14 1/2 years while a bond earning an average of 6% would reach face value in 12 years.

Series EE Bonds issued after 1 February 2003 must be held for at least 12 months before they can be cashed (bonds issued before then could be cashed anytime after 6 months).

Series EE Bonds absolutely should be cashed before their final maturity dates for the following reasons. Firstly, if you fail to cash the Series EE bond before the critical date, you will be losing money because the bond will no longer be earning interest. Secondly, under IRS regulations, tax is due on the interest in the year the bond is cashed or it reaches final maturity. If you hold the bond beyond 12/31 of the final-maturity year, then when you finally get around to cashing it, you will not only owe the tax on the earnings, but interest and penalties besides.

As in the case of I Bonds, interest can be deferred or declared on your taxes annually.

Until September 2004, holders of Series EE bonds who wished to defer tax on the interest paid by those bonds at maturity could cash in their EE bonds to purchase Series HH Savings bonds (prior to 1980, H Bonds). Series HH Bonds pay interest every 6 months, in the form of a check from the Treasury. When the HH bond matures, the holder receives the principal, and a form 1099-INT for that deferred EE interest. However, Series HH bonds are no longer sold.

Ownership of Series EE bonds can be transferred, which is called a "reissue" by the US Treasury. For example if a grandparent wants to give a grandchild some money, bonds can be reissued in the child's name. A transfer in ownership where a living person who was an owner relinquishes all ownership of a bond is a taxable event. This means that the person giving the bonds (the "principal owner") incurs a tax liability for the accrued interest up to the date of transfer and must pay Uncle Sam. It's essential to keep good records until the time when the beneficiary finally cashes the bonds in. Recall that all interest on the bond is paid when it's cashed in. Because someone paid some tax on that interest already, the person cashing the bond should not pay tax on the full amount. Alternatively, the grandparent could just add the grandchild as a co-owner, which doesn't result in anyone incurring a tax liability at the transfer. The Treasury Department's web site has the required forms for reissuing Series EE bonds, namely Public Debt Forms 1851, 1938, and 4000. Each kind of permitted reissue has a special form with detailed instructions.

Before describing the specific conditions that apply to Series EE bonds issued on various dates, it's important to understand the terminology that is used in these explanations. The following list should help. Warning: this gets complicated quickly, thanks to your friends at the US Treasury.

  • Issue date: The first day of the month of purchase. Shown on the face of the bond. Note that the bond face may also show the date on which the Treasury processed an application and printed the bond, but that's not the issue date.
  • Nominal original maturity (date): The latest date at which a Series EE Bond reaches its face value. Because the rate varies over the life of the bond, this is just an estimate. The applicable rates need only exceed the guaranteed rate (see below) by a small amount for the actual original maturity date to occur earlier than the nominal maturity date.
  • Final maturity (date): the date following which the bond no longer earns any interest (see discussion above about cashing bonds before this date).
  • Guaranteed minimum rate during original maturity: the minimum interest rate that the US treasury will pay you on the bonds, no matter what the market rate may be. This can either be stated as an interest rate (from which the nominal original maturity date can be calculated) or as a nominal original maturity date (from which the minimum guaranteed rate can be calculated). Note that the Treasury states this guaranteed minimum rate as the overall yield from issuance, not as the minimum rate for each six-month period. For example, if a bond paid 8% for some period of time but the overall guaranteed yield is 4%, then depending on interest rates and markets, the bond might pay just 1% for some six-month periods without violating the minimum-rate guarantee.
  • Crediting of interest: Prior to 1 May 1995, interest was credited monthly, and calculated to the first day of the month you cash it in (up to 30 months, and to the previous 6 month interval after). Bonds issued after 1 May 1995 and all earlier bonds entering any extended maturity period after 1 May 1995 will only earn interest from that point on every six months. For bonds issued after 1 May 1995 or for earlier bonds entering any extended maturity period after that date, you cash them as soon as possible after any 6 month anniversary date, because cashing a bond any time between any two 6th month anniversary dates loses all interest since the last 6 month anniversary date.
  • Maturity period: there are actually three different maturity periods. First, the initial maturity period is the time required to achieve the guarantee that the bond will double in value. Bonds issued in 2004 are guaranteed to double in value in 20 years, so that's their initial maturity period. Second, an extended maturity period is begun at the end of the initial maturity period if there are more than 10 years left before the bond stops earning interest. An extended maturity period is always 10 years long. Third, the final maturity period is the maturity period in which the bond stops earning interest. The final maturity period can be any length. For example, EE bonds issued in 2004 have only the 20-year initial maturity period and a 10-year final maturity period. Earlier bonds with a 17-year initial maturity period have one 10-year extended maturity period and a 3-year final maturity period. The only context in which maturity periods are relevant is with guaranteed rates, which neither the EE nor the I Bonds issued in 2004 have. For older bonds crossing over from one maturity period to another, however, they pick up the current guaranteed rate (4% as of early 2004) when they cross the boundary.

The following list attempts to summarize the rules that apply to Series E or EE Bonds that were issued in various time periods. Note that the rule changes generally change the game only for bonds that are issued after the rule change. Outstanding Series E Bonds and Savings Notes as well as Series EE Bonds issued in general continue to earn interest unter the terms of their original offerings, even as they enter extension periods. These rules get complicated very quickly, and this article doesn't attempt to be definitive. See the links at the bottom for help with calculating the current redemption value of any bond.

Series E bonds issued before 1980
These bonds are very similar to EE bonds, except they were purchased at 75% of face value. Everything else stated here about EE bonds applies also to E bonds.
Series EE Savings bonds issued 1 November 1982 -- 31 October 1986
These bonds have a minimum rate of 7.5% through their maturity period of 9 yrs 7 mos.
Series EE Savings bonds issued 1 November 1986 -- 28 February 1993
The bonds earn a 6% guaranteed rate until they reach face value (which may be before their 12th anniversary depending on prevailing rates), after which they earn prevailing market based rates, or at least the minimum 4.0% guaranteed rate for the remainder of their life.
Series EE Savings bonds issued 1 March 1993 -- 30 April 1995
If held at least 5 years, these bonds have a minimum rate of 4%, and this rate is guaranteed through their original maturity of 18 years. These EE bonds earn a flat 4% through the first 5 years rather than the short-term rate, and the interest will accrue semiannually. Any bond issued before 1 May 1995 earn a minimum of 4% after it enters its next extended maturity period.
Series EE Savings bonds issued 1 May 1995 -- 30 April 1997
These bonds earn market-based rates from purchase through their original maturity dates. They earn the short-term rate for the first five years after purchase and the long-term rate from the fifth through the seventeenth year. The bonds continue to earn interest after 17 years for a total of 30 years at the rates then in effect for extensions. If the market-based rates are not sufficient for a bond to reach face value in 17 years, the Treasury will make a one-time adjustment to increase it to face value at that time. Therefore, you are guaranteed that a bond will be worth its face value as of 17 years of its purchase date. This equates to a minimum interest rate of 4.1%. If the market-based rates are higher than this, the bond will be worth more than its face value after 17 years.

The short-term rate is 85% of the average of six-month Treasury security yields. A new rate is announced and becomes effective each May 1 and November 1. The May 1 rate reflects market yields during the preceding February, March, and April. The November 1 rate reflects market yields during the preceding August, September, and October.

The long-term rate is 85% of the average of five-year Treasury security yields. A new rate is announced and becomes effective each May 1 and November 1. The May 1 rate reflects market yields during the preceding November through April and the November 1 rate reflects market yields during the preceding May through October.

Interest is added to the value of the bonds every six months. Bonds increase in value six months after purchase and every six months thereafter. For example, a bond purchased in June will increase in value on December 1 and on each following June 1 and December 1. When investors cash their bonds they receive the value of the bond as of the last date interest was added. If an investor redeems a savings bond between scheduled interest dates the investor will not receive interest for the partial period.

Series EE Savings bonds issued 1 May 1997 -- 30 April 2003
These bonds earn a market rate that is 90% of the average market rate on 5-year Treasury notes, which is considered a long-term rate (this change ends the the two-tier long-term/short-term rate system used previously). Interest is compounded semiannually but credited monthly (not every 6 months as before), which reduces the chance of losing interest by cashing a bond at the wrong time. There are two catches: bonds may not be cashed during the first year, and a three-month interest penalty is imposed if a savings bond is redeemed within the first five years. These bonds are guaranteed to reach maturity in 17 years. However, there is no guaranteed rate to complicate things for these.
Series EE Savings bonds issued 1 May 2003 -- present
These bonds are guaranteed to reach face value in 20 years. Otherwise, they are subject to the same rules as described immediately above (May 97 - April 03).

For current rates, you may call 1-800-4US-Bonds (1-800-487-2663) within the US. You can call any Federal Reserve Bank to request redemption tables for US Savings Bonds. You may also request the tables from The Bureau of Public Debt, Bonds Div., Parkersburg, WV 26106-1328.

Here a few web resources that may help.

  • The official US Savings Bonds web site offers a huge amount of information, including information about the current redemption value (CRV) of bonds. It also can enroll you in the Treasury Direct program, which lets you purchase Series EE (denominations 50 to 1000) and I Bonds (denominations 50 to 500) via direct debit from a bank account (purchases with a credit card ended in 2003).
  • The Treasury's Bureau of the Public Debt maintains another government web site with comprehensive information about savings bonds (includes information about branches of the Federal Reserve Bank):
  • Jack Quinn, Sr. runs a web site that offers information and assistance with savings bond issues:
  • The Savings Bond Advisor offers detailed advice on maximizing the return from savings bonds and much background information to help you understand these investments.

Note that these complex regulations come from many of the same people who developed the US Tax Code. See any similarities?

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