Why Buy U.S. Bond Offerings

Deciding to buy U.S. bond offerings can be profitable and patriotic.

The U.S. government has issued different bonds over the years as “war bonds”. The series EE patriot bond is one of these types and was meant not only to provide a savings solution, but also as a way for citizens to show their patriotism.  After the 9/11 disasters, Congress asked the Treasury to again issue war bonds, which explains what is stated on the bond itself – “patriot bond”.  The EE patriot bond functions like a normal series EE savings bond.  The money used to pay for the bond is deposited into a general fund with the same returns as any series EE. 

Re-pricing of the EE bond is like the I-bond, being done twice a year.  The difference is that the adjustment is on the main rate. Unlike the I bond, the EE bond has no inflation component in the calculation. The EE bond started as a variable rate bond. The rate was calculated at 90 percent of the average yield for five-years securities for the previous half-year.  But from May 2005, the EE was transformed into a fixed-rate bond.  This means that the rate that you receive when you now buy the bond will be the fixed rate for the lifetime of the bond. It is based on the ten-year average for the month preceding your purchase. 

The EE bond works via accrual of interest. When you buy U.S. bond type EE, the interest is added to the amount that you originally spent, and this continues throughout the lifetime of the loan.  The value of your bond rises even further because interest is compounded. You will pay federal income taxes on these gains, but not local or state taxes. 

You can buy the bonds in financial institutions both online and “bricks and mortar”, and even through payroll savings plans with your employer.  There is a range of eight denominations from $50.00 up to $10,000.  For online purchases there is even a $25.00 denomination possible. 

When you buy US bond series EE as a paper bond from a broker, you pay half of the face value. However, when you buy electronically, you purchase the bonds at their full face value. There is no difference in buying one or the other way, because your interest is only calculated on the amount that you spent to buy the bond. For example, if you buy a paper EE bond with a face value of $200, then you pay $100,00. If someone buys an electronic EE bond with a face value of $100, then that person will in fact pay $100. But you and that other person will both get the same amount of interest.

The bond does not have any in built protection against inflation but typically it has a history of doing better than inflation on a year-by-year basis.  Recently, it was converted to a fixed rate. So now your decision to buy US bond EE may still be a good deal, but just be aware that there is no longer any protection against inflation.