ASK KIM
New Fixed Rate for EE Savings Bonds
by Kimberly Lankford

I understand that the rules for EE savings bonds just changed. How do the new rules work?

Series EE savings bonds issued in May 2005 and later will now have a fixed rate rather than an adjustable rate that is set every six months.

The rate for EE bonds purchased from May 2005 to October 2005 is 3.5%. That rate will remain the same for the first 20 years and will be extended for another ten years after that unless the Treasury Department announces different terms at that time (EE bonds earn interest for 30 years). Rates still will be announced every May 1 and November 1 and apply to new bonds that are purchased.

The Treasury Department guarantees that EE bonds issued from May 2005 and later will at least double in value over 20 years. If the fixed rate isn't high enough to double the bond's value over that time period, the Treasury will make a one-time adjustment to make up the difference (you need about a 3.5% annual return to double your money over 20 years).

Interest rates are quite low these days, but you don't need to be stuck with those rates forever. You can redeem your bonds after holding them for 12 months, although you'll forfeit three months' interest if you cash them in before five years.

If you already own Series EE bonds that were issued from May 1997 to April 2005, their interest rates will continue to be adjusted every six months. This rate is still based on 90% of the average five-year Treasury yields for the preceding six months and will be 3.42% for May through October 2005. The interest rate on those bonds will be reset in November.

For more information about how savings bonds work, see our Savings Bonds FAQs.