Understanding Series EE Savings Bonds

The U. S. Treasury website defines Series EE Savings Bonds as “reliable, low-risk government-backed savings product(s)”. Purchased at face value from the U. S. Government, they are sold in increments of $25. Those issued after May 1, 2005, have a fixed interest rate, which means they are stable, predictable, and have a known value. The Series EE Savings bond has been around since 1980, but its history goes back to 1935, when the government started the savings bond program so the public could participate in government financing.

Treasury bonds have actually been issued at different times in this nation’s history since 1776, but because they were affected by the stock market, they were unstable. Sometimes people had to cash the bonds in before maturity, often losing a great deal of money. As a result, the savings bond program was born, with fixed interest rates and known redemption values. The first bonds, sometimes referred to as Baby Bonds, were purchased for 75% of their value that paid 2.9% interest with a 10-year maturity date.

In May 1941, the Series E Savings Bond was issued. Often called the Defense Bond, it was followed in 1942-1945 by the War Bond. Success was due to a large number of volunteers throughout communities, financial institutions, newspapers, and the film industry. These people not only promoted the bonds, but also donated their time to assist in selling them. In fact, the payroll savings plan’s success from 1963 to 2003 came from the assistance of many Fortune 500 companies.

In 1980, Series EE Savings Bonds replaced Series E Bonds. Bonds purchased between May 1997 and April 30, 2005, earned variable interest based on the Treasury yield. That can be good during inflation and bad when the interest rate is low. However, Series EE Savings Bonds purchased after May 1, 2005, have a fixed interest rate, which is predictable and stable.

Investors purchasing Series EE Savings Bonds are lending money to the U. S. Government. Issued by the U. S. Treasury, the bond does not fluctuate, and can be sold back at full value with minimal to no penalty, depending on timing. There is no fee or commission, and when interest rates drop, the savings bond rate remains the same. With its liquidity, low risk, fixed rate of return, and the fact that it cannot lose money, many investors consider the Series EE Savings Bond as a bridge between saving and investing.