J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

30.14 Series EE Bonds

Series EE savings bonds give you an opportunity to defer tax; see below. EE bonds may only be purchased online from Treasury Direct at www.treasurydirect.gov . They must be held 12 months from the issue date before they can be redeemed. Bonds cashed in any time before five years are subject to a three-month interest penalty; see the Example below.

Series EE savings bonds with an issue date on or after May 1, 2005, earn a fixed rate of interest. Interest accrues monthly and is compounded semiannually. EE bonds issued from May 1997 through April 2005 continue to earn market-based interest rates set at 90% of the average five-year Treasury securities yields for the preceding six months; these rates change every May 1 and November 1. EE bonds issued before May 1997 earn various rates depending on the date of issue.

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Caution

Timing Redemptions of Older EE Bonds

In the year you cash in a savings bond you could lose interest by cashing it in too soon. Interest accrues only twice a year on EE bonds issued prior to May 1, 1997. The accrual months depend on the month of issue. If you cash pre–May 1997 bonds before the accrual month that applies to your bond, you will lose interest (30.14).

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EXAMPLE

You purchased series EE bonds in March 2011. If you cash them 24 months later, in March 2013, you get your original investment ...