EE savings bonds “doubling” in 2019
EE savings bonds “doubling” in 2019
We seem to have quite a few EE savings bonds purchased in 2002 (later, we switched to buying mostly I bonds, and I was a little surprised to find these paper EE’s in the safe). In 2002, Treasury guaranteed these bonds would double in value (to match the face value) in 17 years. So these should all double (=achieve face value) at some point in 2019.
That’s a win because absent the guarantee, due to the low interest rate regime of the BernankeYellen years, the accrued value on these bonds falls well short of face.
Query: once Treasury does make good its guarantee by a onetime adjustment of the bonds’ value, should we cash them in or continue to hold them (final maturity 2032; variable rate of interest adjusted every 6 months; current interest rate 2.18%; rate = 90% of average yield of 5year treasury notes over preceding 6 months)?
If we continue to hold them, will interest going forward compound on the newly adjusted higher face value amount, or only on the underlying principal value absent the Treasury guarantee? Can’t find this nuance addressed on the Treasury Direct website.
Thanks for any insight—
Smectym
That’s a win because absent the guarantee, due to the low interest rate regime of the BernankeYellen years, the accrued value on these bonds falls well short of face.
Query: once Treasury does make good its guarantee by a onetime adjustment of the bonds’ value, should we cash them in or continue to hold them (final maturity 2032; variable rate of interest adjusted every 6 months; current interest rate 2.18%; rate = 90% of average yield of 5year treasury notes over preceding 6 months)?
If we continue to hold them, will interest going forward compound on the newly adjusted higher face value amount, or only on the underlying principal value absent the Treasury guarantee? Can’t find this nuance addressed on the Treasury Direct website.
Thanks for any insight—
Smectym
Re: EE savings bonds “doubling” in 2019
Addendum: statistically, one of the bond holders will probably still be alive in 2032
Smectym
Smectym
Re: EE savings bonds “doubling” in 2019
Mainly posting to bump the thread as others know this area much better than I. It's my understanding that a one time adjustment is made on anniversary of issuance & thus from that the interest would be calculated. As to whether or not to cash in, if it were me I'd look at broader picture, but most likely would redeem. If the rate curve shaped as currently is, you're not getting much advantage compared to other rates. But will your tax situation change between "now" & final maturity such that your rate would/might go down? Would it simplify estate matters (if applicable)?
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Re: EE savings bonds “doubling” in 2019
In addition to determining if the new interest rate is competitive enough to make you want to continue to hold vs redeeming the bonds after the doubling, a lot would also depend on your current vs future expected tax rate, since the EE Bonds continue to offer taxdeferral until final maturity. Redeeming them when you're in your lowest expected tax bracket could make good sense.not4me wrote: ↑Mon Jun 11, 2018 12:57 pmMainly posting to bump the thread as others know this area much better than I. It's my understanding that a one time adjustment is made on anniversary of issuance & thus from that the interest would be calculated. As to whether or not to cash in, if it were me I'd look at broader picture, but most likely would redeem. If the rate curve shaped as currently is, you're not getting much advantage compared to other rates. But will your tax situation change between "now" & final maturity such that your rate would/might go down? Would it simplify estate matters (if applicable)?
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Re: EE savings bonds “doubling” in 2019
The interest going forward is based on a recent redemption value that includes the adjustment of the redemption value to be twice the purchase price. The relevant formula is in Section 351.30 of "Offering of United States Savings Bonds, Series EE" federal regulations. The formula uses the "redemption value at the beginning of the semiannual rate period".

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Re: EE savings bonds “doubling” in 2019
I was not aware of this. So, after 17 years, or in my case 20 years, the bonds double from face value. But if you keep those bonds beyond the doubling, the normal interest rate kicks in based on the doubled value of the face. I was almost sure I would sell at 20 years but now this MAY change that.FactualFran wrote: ↑Mon Jun 11, 2018 2:23 pmThe interest going forward is based on a recent redemption value that includes the adjustment of the redemption value to be twice the purchase price. The relevant formula is in Section 351.30 of "Offering of United States Savings Bonds, Series EE" federal regulations. The formula uses the "redemption value at the beginning of the semiannual rate period".
Re: EE savings bonds “doubling” in 2019
Yes, thanks for all responses but special thanks to FactualFran for clarifying (with citation to the source) that the compounding of interest going forward will be on the new, upwardadjusted balance pursuant to the Treasury guarantee.Mitchell777 wrote: ↑Mon Jun 11, 2018 2:52 pmI was not aware of this. So, after 17 years, or in my case 20 years, the bonds double from face value. But if you keep those bonds beyond the doubling, the normal interest rate kicks in based on the doubled value of the face. I was almost sure I would sell at 20 years but now this MAY change that.FactualFran wrote: ↑Mon Jun 11, 2018 2:23 pmThe interest going forward is based on a recent redemption value that includes the adjustment of the redemption value to be twice the purchase price. The relevant formula is in Section 351.30 of "Offering of United States Savings Bonds, Series EE" federal regulations. The formula uses the "redemption value at the beginning of the semiannual rate period".
Whether to redeem then (the "original maturity date" to use Treasury parlance) or to let the bonds alone is probably a close call. As too often, tax impact is probably the tail wagging the investment decision dog. We have 13 of the EE bonds, all purchased in 2002. Redeeming them all in 2019 would produce a large tax bill and perhaps even bump us into a higher bracket.
If we redeem one a year, the tax hit is spread out, we get a nice income boost each year, and the final bond will redeem right at final maturity. May do it that way.
Smectym
Re: EE savings bonds “doubling” in 2019
A nice surprise!
Definitely wait till they reach face value if you do not need the money
My understanding is future interest is paid based on the current value. So, yes, once they reach face value interest will be based on that. I did not realize current interest rate is 2.18%. That is not too bad. Last time I checked it was around 1.6.smectym wrote: ↑Sun Jun 10, 2018 11:24 pmIf we continue to hold them, will interest going forward compound on the newly adjusted higher face value amount, or only on the underlying principal value absent the Treasury guarantee? Can’t find this nuance addressed on the Treasury Direct website.
Thanks for any insight—
Smectym
I have not calculated what interest they would have actually earned to double in 17 (or for recent ones 20) years. Just did, looks like about 4.1% on 17 years, and 3.5% on 20 years). I suspect it was competitive with CD rates over those years. I bought them mostly for tax free if used for education. But then I realized that waiting for them to reach face value was probably more valuable than the tax free growth. So I only cashed in those older ones (that had doubled, and were tax free). I'll probably start slowly cashing in the rest when I quit working.
You definitely want to sell them before they get 30 years old (when interest I believe stops)