The Series EE Bond, often known as the “Patriot Bond,” is a non-marketable, interest-bearing security issued by the U.S. government through the Department of the Treasury. Designed for conservative investors, these bonds are characterized by their guaranteed appreciation and government backing, making them a popular choice among those seeking a low-risk investment option.
Key Features of Series EE Bonds
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Guaranteed Doubling: One of the most appealing features of Series EE bonds is their guarantee to at least double in value over a 20-year period. This means that if you invest in a bond today, you can be assured that its value will be at least double its face value after 20 years.
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Extended Life: While the typical term is 20 years, some Series EE bonds can continue to accrue interest and remain valid for a full 30 years from the date of issue.
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Investment Limitations: Investors are limited to purchasing up to $10,000 worth of Series EE bonds each calendar year. The minimum amount for a single bond purchase is $25.
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Interest Rates: The coupon rates for Series EE bonds are set at the time of issuance based on a fixed percentage linked to long-term Treasury rates. For bonds issued after May 2005, the Treasury assigns semi-annual fixed coupon rates on May 1 and November 1.
How a Series EE Bond Works
Series EE bonds serve as safe, non-marketable securities, which means they can’t be bought or sold in the open market. These bonds are part of a broader savings bond program that the U.S. Treasury offers, which also includes Series I bonds.
Interest Payment and Redemption
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Interest Payments: Interest on Series EE bonds accrues monthly but is paid out semiannually. New bondholders can start seeing their investment grow, but will not receive cash until they redeem the bond.
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Redemption Timeline: Investors must hold onto EE bonds for at least 12 months before they can redeem them. If bonds are redeemed before five years, the investor will forfeit the last three months of interest. The maximum interest is accrued if the bonds are held for their full term of 30 years.
Tax Considerations
Interest earned from Series EE bonds is exempt from state and local taxes; however, it is subject to federal income tax. This federal tax obligation only arises at the time of maturity or if the bonds are redeemed before maturity.
Special Considerations
Interestingly, Series EE bonds were rebranded as "Patriot Bonds" following the September 11, 2001 terrorist attacks. They are identical in every way to traditional Series EE bonds, except that Patriot Bonds bear specific markings indicating their designation. While paper EE bonds are no longer issued, existing Patriot Bonds can still be cashed or converted into electronic forms.
Additionally, the bonds do not require reissuance for minor typographical errors, which makes handling mistakes in names or Social Security numbers relatively straightforward for investors.
Purchasing a Series EE Bond
Investors may acquire Series EE bonds electronically through the TreasuryDirect website at face value or purchase paper bonds through designated financial institutions, at which point they are issued at a 50% discount to their par value.
Recommended Strategy
Given that Series EE bonds are designed as long-term investments, they are best for individuals looking for stable growth and minimal risk. They can be particularly suitable for long-term savings goals such as education funding or retirement investments.
In summary, Series EE bonds are a robust investment choice for conservative investors. With a guaranteed return, tax advantages, and low-risk profile, they can play a key role in a diversified investment portfolio. As with any investment, potential bondholders should consider their financial situation, investment horizon, and goals before purchasing these bonds.