How Does a Savings Bond Mature?

US Savings bonds

There are two types of savings bonds that are available for purchase: I-bonds and EE bonds. I savings bonds can be bought as either paper or electronically issued securities. Paper savings bond holders may also convert their bonds to electronic bonds. The I-bond has a combined accrual rate that is based on the changing 6-month inflation rate as well as the fixed interest rate set during the specific 6-month period in which the I-bond is purchased. The general purpose behind the government's creation of the I-bond was to help protect savings against inflation. You may purchase a maximum of $5,000 worth of paper and/or electronic I-bond securities in a year. Electronic savings bonds have more flexibility than paper bonds in that they can be bought in any increment of $25 up to $5,000. Paper bonds have seven increments of $50, $75, $100, $200, $500, $1,000 and $5,000.

I savings bonds accrue value every month and take thirty years to fully mature. Interest compounds every six months.

The formula is rather complicated: it is the fixed interest rate plus two times the half year inflation rate plus the fixed rate times the half year inflation rate.

The I bond matures after two decades and will continue for another 10 years unless the bond holder specifically takes a distribution. If you redeem the bond before five years is up, you will pay a penalty of the most recent 3 months of interest. You must hold the bond for at least one year in order to redeem it. This is true for EE bonds as well.

EE bonds have slightly different rules. EE Savings bonds purchased now have a fixed interest rate, (not a composite rate, like the I-bond). You may easily calculate what they're worth when they mature. EE bonds purchased in the current period mature at twenty years and go into an automatic extension for ten years. These bonds accrue interest every month. If you bought a paper bond between May in 1997 and the end of April 2005, however, the interest rate varies according to a market based rate. See link below for rules on EE securities purchased before 1997. All EE-bonds bought since May 1997 are compounded twice a year. Like I-Bonds, electronic EE-bonds are available in increments which vary from $25.00 to 5,000.00. Paper E-bonds are sold in the same increments as paper I bonds: 50.00, 75.00, 100.00, 200.00, 500.00, 5,000 with an additional category of 10,000. The paper EE bond cost is half of what their final or matured worth is; for example, a 5,000.00 paper EE-bond at maturity costs 2500.00 at its purchase.

The penalty for redeeming EE-bonds early is the same as for redeeming I bonds early: if you redeem EE-bonds before five years you will forfeit the last earned three months' interest.


You may purchase $5,000 each of the paper, electronic, EE and I-bonds per year, totaling $20,000 each. (The $60,000 per year purchase limit has been reduced.) When you report interest on your savings bond, you may choose to do so annually or when you redeem the bond when it is finished accruing interest. There may be certain exceptions on the taxation of the EE bond at maturity, if it is used for educational purposes. Ask your financial advisor for details. Paper savings bond holders of series I, E and EE bonds may also convert their bonds to electronic bonds. Series E bonds were discontinued in 1980, and were replaced with series EE bonds. Although the E bond program started in 1941, the last series E savings bond will mature in 2010. The maturity of some E bonds was lengthened to 40 years. Series HH/H bonds are no longer for sale as of 2004, but these bonds pay interest on the principal of the bond every 6 months until it is cashed out. HH bonds were also available for purchase with HH/H bonds which had matured for 30 years, or with EE or E series bonds. This is no longer the case.

Both I and EE series bonds can earn interest for 30 years. The fixed interest rate of the E series lasts for 20 years. After that, the interest rate adjusts, and interest is earned every month.