Q:

How does the government determine the interest rates for Series EE bonds?

A:

Quick Answer

The government sets interest rates for EE bonds based on 10-year treasury note yields but adjusts these rates to account for factors unique to savings bonds, states TreasuryDirect. Bonds purchased between May 1, 2015 and Oct. 1, 2015 are subject to a 0.30 percent annual interest rate.

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How does the government determine the interest rates for Series EE bonds?
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Full Answer

EE bonds are savings bonds that pay an annual interest rate fixed at the time of purchase for the first 20 years they are held, after which the U.S. Department of the Treasury may change the interest rate paid, explains TreasuryDirect. EE bonds cease earning interest after 30 years but are considered to have reached original maturity after 20 years. The final 10 years of the bond period is called the extended maturity period. An EE bond can be redeemed 12 months after purchase, but the bondholder forfeits the previous three months' interest if he redeems the bond within five years of purchase.

The U.S. Department of the Treasury changed the terms of EE bonds in 2005, according to TreasuryDirect. From May 1997 to April 2005, EE bonds earned a variable interest rate, and prior to that, EE bonds' interest rates varied based on purchase date. EE bonds feature certain tax advantages. These bonds can be used for educational purposes that exempt their earnings from federal taxes, and all EE bond earnings are exempt from state and local taxes.

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