Investors have to know only 3 things to understand how their bonds earn interest and grow in value...

1. Series EE savings bonds bought on or after May 1, 2026 will earn interest based on 5-year Treasury security yields right from the start. The new rate for EE bonds will be 90% of the average yields on 5-year Treasury securities for the preceding six months.

2. EE bonds will increase in value every month instead of every six months. Interest is compounded semiannually.

3. A 3-month interest penalty will apply to bonds cashed before five years. This rewards longer-term bond holders who then benefit from higher 5-year rates over the full life of the bond.

   Here's how it works: If you cash a bond before it's five years old, you give up the last 3 months worth of interest. For example, if you buy a bond in May 1997 and cash it 24 months later in May 1999, you get your original investment back plus 21 months of interest. The value of the bond would be based on the announced rates applied over the 21-month period from May 1997 through February 1999.

Series EE bonds now earn interest much like other savings products available in the marketplace. When you team up these improvements with the many other features of bonds -- safety, ease of purchase, and tax advantages -- EE bonds are truly unique!

Easy to Understand

Rates announced each May and November are the annual rates that apply to bonds for those 6-month earning periods. For example, the 6-month earning period for a bond issued in May is from May through October; for a bond issued in June, it's June through November.

Interest Earning Life

Series EE bonds earn interest for 30 years. This long life lets investors use savings bonds for truly long-term goals like education and retirement.

Tax Advantages

Interest earned on your Series EE bonds is exempt from State and local income taxes. You can defer Federal income tax until you redeem the bonds, or they stop earning interest after 30 years. This means you can plan ahead and choose when might be the best time to realize income for tax purposes. And, since your interest isn't taxed until you redeem a bond, your savings grow faster.

There are also special tax benefits available for education savings. If you qualify, you can exclude all or part of the interest earned on Series EE bonds from income when the bonds are redeemed to pay for post-secondary tuition and fees. For more information see Savings Bonds for Education.

Face Value/Denomination

Series EE bonds are sold at half their face value and are available in denominations ranging from $50 through $10,000. Because EE bond interest is pegged to market rates every six months, there's no way to predict when a bond will reach its face value. In the unlikely event that rates are so low that a bond doesn't reach face value by the time it's 17 years old, Treasury will make a one-time adjustment to increase the bond's value to face value at that time.

Liquidity

You can cash Series EE bonds any time after six months. Most investors plan to hold bonds for longer term goals, yet they know they can get their money with interest if they need it. Of course, if a bond's redeemed before five years, a 3-month interest penalty applies.

Bonds Issued Before May 1997

Savings bonds and notes issued before May 1, 2026 are not affected by this change and continue to earn interest under the terms in effect before May 1.

See also:

Frequently Asked Questions - EE Bonds Bought May 1997 or After
EE/E Bought May 1995 through April 1997
EE/E Bought Before May 1995
Market-Based Rates
When Bonds Stop Earning Interest
When Bonds Increase in Value