The Series EE Patriot Bond is a type of bond that historically has been referred to as a "war bond." It is meant to show patriotism. After the September 11 attacks, Congress called for the Treasury to issue war bonds again. The front of the bond labels it a "Patriot Bond." It operates as a regular Series EE savings bond. The money raised by the bonds is deposited into the general fund, and the yield is the same as any other Series EE bond. The EE is similar to the I-bond in that it is re-priced semiannually. The main difference is that the adjustment is on the main rate, there is no inflation component. It used to be that the EE was a variable rate bond with a rate placed at 90% of the average five-year securities yield for the previous six months. As of May 2005, the EE has been transformed into a fixed-rate bond. The rate is adjusted every six months. The rate you receive when you purchase the bond will be your rate for the duration of the bond. It is based on the 10-year average for the preceding month. It's a bit of a timing question. The fixed rate is great when interest rates are high, but not so great when rates are low and expected to rise. You could find yourself waiting to long just to receive the best rate. The EE Bond works through interest accrual. The interest is added to the amount you originally paid throughout the life of the loan. Compounding interest raises the value of your bond. The interest earned will be subject to federal income taxes. Local and state taxes are not levied. The EE can be purchased at many financial institutions, both local and online, and through your employer's payroll savings plans. The bonds come in eight denominations if purchased through a financial institution or your savings plan, they include: $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. If you purchase the bond online, there is a $25 denomination available. You will pay half of the face value on paper EE Bonds. For example, a $50 bond will cost you $25. Electronic bond are purchased at their face value. It isn't better to buy one over another because you only earn interest on the amount you paid for the bond. If you buy a $200 paper EE Bond for $100, and someone buys a $100 electronic bond for $100, you will both receive the same amount of interest. It is based on the amount you have paid. But if the other person buys an electric bond with a $200 face value, you will be receiving half the interest that they do. There isn't any inflation protection built into the bond, but on average, the bond has a history of doing 2% better than inflation on an annual basis. That was before it was switched to a fixed rate. Now be aware that there is absolutely no inflation protection expected. |
Index Page
