The Series EE Patriot Bond is a type of bond that historically has
been referred to as a "war bond." It is meant to show patriotism. After
the September 11 attacks, Congress called for the Treasury to issue war
bonds again. The front of the bond labels it a "Patriot Bond." It
operates as a regular Series EE savings bond. The money raised by the
bonds is deposited into the general fund, and the yield is the same as
any other Series EE bond.
The EE is similar to the I-bond in that
it is re-priced semiannually. The main difference is that the
adjustment is on the main rate, there is no inflation component. It
used to be that the EE was a variable rate bond with a rate placed at
90% of the average five-year securities yield for the previous six
months. As of May 2005, the EE has been transformed into a fixed-rate
bond. The rate is adjusted every six months. The rate you receive when
you purchase the bond will be your rate for the duration of the bond.
It is based on the 10-year average for the preceding month.
It's
a bit of a timing question. The fixed rate is great when interest rates
are high, but not so great when rates are low and expected to rise. You
could find yourself waiting to long just to receive the best rate.
The
EE Bond works through interest accrual. The interest is added to the
amount you originally paid throughout the life of the loan. Compounding
interest raises the value of your bond. The interest earned will be
subject to federal income taxes. Local and state taxes are not levied.
The
EE can be purchased at many financial institutions, both local and
online, and through your employer's payroll savings plans. The bonds
come in eight denominations if purchased through a financial
institution or your savings plan, they include: $50, $75, $100, $200,
$500, $1,000, $5,000 and $10,000. If you purchase the bond online,
there is a $25 denomination available.
You will pay half of the
face value on paper EE Bonds. For example, a $50 bond will cost you
$25. Electronic bond are purchased at their face value. It isn't better
to buy one over another because you only earn interest on the amount
you paid for the bond.
If you buy a $200 paper EE Bond for $100,
and someone buys a $100 electronic bond for $100, you will both receive
the same amount of interest. It is based on the amount you have paid.
But if the other person buys an electric bond with a $200 face value,
you will be receiving half the interest that they do.
There isn't
any inflation protection built into the bond, but on average, the bond
has a history of doing 2% better than inflation on an annual basis.
That was before it was switched to a fixed rate. Now be aware that
there is absolutely no inflation protection expected.
Martin Lukac (http://www.MartinLukac.com), represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com,
a finance web-company specializing in real estate/mortgage market. We
specialize in daily updates, rate predictions, mortgage rates and more.
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