U.S. Treasury savings bonds offer security, simplicity, and government backing but also have tax implications. Like any interest-bearing investment, understanding how they’re taxed can help you maximize your savings.
Understanding deferred interest on Series EE Bonds
Series EE Bonds earn interest differently depending on when they were purchased. Bonds issued since May 2005 have a fixed interest rate, while those bought from May 1997 to April 2005 follow a variable market-based rate.
Paper EE Bonds (issued between 1980 and 2012) were sold at half their face value—meaning a $50 bond costs $25 and only reaches full value at maturity. Today’s electronic EE Bonds are sold at their face value, so a $100 bond costs $100, and they earn a fixed interest rate that’s set before you buy the bond. They earn that rate for the first 20 years with a possible rate adjustment for the final 10 years.
Electronic EE Bonds must be held for at least one year, and redeeming them within the first five years is subject to a penalty.
Unlike traditional interest-bearing accounts, EE Bonds don’t pay interest regularly. Instead, accrued interest is reflected in the bond’s redemption value. The U.S. Treasury provides tables that show the redemption values so you can track growth.
By default, interest isn’t taxed until the bond is redeemed, allowing for tax deferral. Bondholders may choose to report interest annually, and if so, all previously accrued but untaxed interest must be reported in that year.
There are cases when reporting interest early can be beneficial. For instance, if the bondholder has little to no other current income, it may be a wise decision to incur the income in those low or no tax years to avoid future inclusion. The same is true for bonds owned by children, though the “kiddie tax” rules may apply.
Unless you opt to report interest annually, all accrued interest is taxed when the bond is redeemed or transferred—unless it’s exchanged for a Series HH bond. EE Bonds continue earning interest even after reaching their face value, but once they hit final maturity at 30 years, interest stops accruing and must be reported (again, unless it was exchanged for an HH bond).
If you own EE bonds (paper or electronic), be sure to check their issue dates. If they’ve stopped earning interest, it might be time to redeem them and reinvest the money in a more profitable option.
Inflation-protected savings with Series I Bonds
Series I savings bonds are designed to keep pace with inflation so your money retains its purchasing power. The earnings rate combines a fixed rate, which remains constant for the bond’s lifetime, and a variable inflation rate that adjusts twice a year. New rates are announced every May 1 and November 1.
Series I bonds are issued at face value, meaning you pay the full amount upfront, and bondholders have two options for reporting interest:
- Defer taxation until the bond reaches final maturity, is redeemed, or is otherwise disposed of—whichever comes first.
- Report interest annually as it accrues rather than deferring it.
If you choose to report interest annually, the election applies to all Series I bonds you currently own as well as any future purchases and other discount-based investments, like Series EE bonds. This election is binding unless changed through a specific IRS procedure.
State and local tax exemption and education benefits
While interest earned on EE and I bonds is subject to federal income tax, it’s exempt from state and local taxes.
Additionally, if the funds are used for qualified higher education expenses, you may be able to exclude the interest from federal taxes, provided that your income falls within certain limits.
In 2025, this tax benefit begins to phase out for modified adjusted gross incomes (MAGIs) above $149,250 for joint filers and $99,500 for others (up from $145,200 and $96,800, respectively, in 2024.) The exclusion disappears entirely at MAGIs of $179,250 for joint filers and $ 114,500 for others (up from $175,200 and $111,800 in 2024).
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