Effective May 1, 2005, the interest rate on new Series EE bonds is fixed for the life of the bond. Existing Series EE bonds purchased before May 1, 2005, were not affected and continue to earn interest based on 90% of the average market yield of five-year Treasury securities.
Series EE bonds have used this variable interest rate method of crediting interest since 1982. Interest rates on previously issued U.S. savings bonds will continue to change every six months on May 1 and November 1.
However, after May 1, 2005, investors who buy a new Series EE savings bond receive the rate in effect at the time of purchase for the life of the bond. Interest on U.S. savings bonds can accrue federally tax-deferred (as well as state income tax-free) for as long as 30 years or until a bond is redeemed. Series EE bonds, as well as inflation-adjusted Series I bonds, must be held one year before being eligible for redemption.
Redemptions made prior to five years from issue continue to be subject to a three-month interest penalty. The 2005 change in savings bond interest rates was driven by market conditions. In a rising interest rate environment, fixing the rate of interest paid on Series EE bonds saves the federal government money and reduces the national debt.
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