Bottom Line on EE Bonds

[AdamA]

I just want to make sure I understand how these work:

1.  $10K is guaranteed to be $20K after 20 years.
2.  You can buy $10K a year.
3.  Tax deferred growth, without state taxes ever.
4.  Must hold them for one year.  If sold before 5 years you forfeit 3 months of interest.
5.  If you hold past 20 years:
    a.  What interest rate do you get (after the 20th year)?
    b.  Do you get paid interest on the doubled value ($20K)?

I know a lot of this has been spelled in other posts, but I just want to make sure I understand.

Thanks.

[MediumTex]

They earn interest for 30 years.

Until recently, the 20 year thing didn't mean much because the bonds were typically doubling earlier than that based upon where interest rates were at.

[AdamA]

They earn interest for 30 years.

Until recently, the 20 year thing didn't mean much because the bonds were typically doubling earlier than that based upon where interest rates were at.

Got it, but after 20 years you start earning interest on the doubled value, right?

[MediumTex]

They earn interest for 30 years.

Until recently, the 20 year thing didn't mean much because the bonds were typically doubling earlier than that based upon where interest rates were at.

Got it, but after 20 years you start earning interest on the doubled value, right?

I don't know.  That's a good question.

[Greg]

They earn interest for 30 years.

Until recently, the 20 year thing didn't mean much because the bonds were typically doubling earlier than that based upon where interest rates were at.

Got it, but after 20 years you start earning interest on the doubled value, right?

I don't know.  That's a good question.

I don't know this for sure but that seems correct. It is stated they will add a one-time addition if the fixed rate does not get to doubling of value after 20 years. At the 20 year mark then at current rates, it would then double. After that doubling point, it would continue to earn 0.6% off of that 20 year mark value (since that is the value of the bond at that time and interest accrues off of the bond value). From their website I haven't found much more detail on this but I'll see if I can find anything else.

[TripleB]

I dont think 20 years have passed since the doubling rule went into effect so I doubt it's been tested.

However, my interpretation is the following:

If you hold it 20 years then the value doubles, if the value has not yet doubled from the regular compounded interest.

If you hold them more than 20 years, you either get the doubled value (from 20 years) or you get the regular compounded interest, whichever is higher.

You will not get any interest earned on the doubled amount. Essentially, you will need to sell it at the 20 year mark because you get no further gains.

[Gumby]

You will not get any interest earned on the doubled amount. Essentially, you will need to sell it at the 20 year mark because you get no further gains.

No, that's incorrect. The doubling is just a one time adjustment that only happens if the fixed rate didn't double the bond before 20 years. TreasuryDirect explains...

When will new EE bonds reach original maturity?

EE Bonds issued on and after May 1, 2005, will reach original maturity at 20 years. These bonds also are guaranteed to double in value from their issue price no later than 20 years after their issue dates. This is the bonds' original maturity. If a bond does not double in value as the result of applying the fixed rate for 20 years, the Treasury will make a one-time adjustment at original maturity to make up the difference. During the 10-year extended maturity period that follows original maturity, bonds will earn interest at the fixed rate set at issue unless a new rate or new terms and conditions are announced for the extension period.
Source: http://www.treasurydirect.gov/indiv/res ... m#maturity