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What a Patriot Bond Is and What to Do With It


Written by Marianne Hayes | Published on 1/14/2018

Looking to learn more about Patriot Bonds? Let’s start with a quick explainer of what savings bonds are. They’re low-risk investments that are backed by the U.S. government. After you purchase the bond, they pay you back the principal plus interest.

Savings bonds come in a number of shapes and sizes, with some earning interest differently than others. Series EE savings bonds, which have a fixed rate of return, are available online from the U.S. Department of the Treasury via TreasuryDirect.gov.

If you hold onto a Series EE bond for 20 years, it’s guaranteed to double in value. Ken Tumin, founder of DepositAccounts, says that’s an annual rate of return of about 3.5% — not too shabby considering that the current 30-year treasury yield is around 3%. Series EE bonds reach maturity and stop earning interest after 30 years.

Series I bonds are a little different. (More on this in a bit.) So where do Patriot Bonds come into play? We’ll explain.

What is a Patriot Bond?

Patriot Bonds are essentially Series EE bonds, but in paper form. They were created in response to the 9/11 attacks to raise funds to support anti-terrorism efforts. (All proceeds were deposited into a fund earmarked for this cause.) They were issued from December 2001 to December 2011, but have since been discontinued.

While Patriot Bonds are no longer being issued (Series EE bonds are now only available in electronic form), many people have yet to redeem them — and are trying to determine the best time to cash them in.

When can I redeem my Patriot Bond?

Technically speaking, you can redeem a Patriot Bond whenever you like, but timing does matter when it comes to getting the most out of your investment. Since it’s an EE bond, it’s guaranteed to double in value after 20 years — and if your bond was issued in 2001, you’re getting pretty close to the finish line — but you’ll get an even better return if you can hold out 10 more years.

“At 30 years, it reaches its full maturity and stops earning interest, and if you haven’t paid any taxes, you actually owe taxes then too,” said Tumin. “So it makes very much sense to redeem them at 30 years and not wait any longer because there’s no extra value of waiting.”

Taxpayers aren’t required to report the interest earned on a Series EE bond until they either redeem it or reach the 30-year mark — whichever comes first. The upside is that both Series EE and Series I savings bonds are only taxed federally, so you’re off the hook for state and local taxes. If you meet specific education requirements, you may be able to reduce your tax burden even more.

Taxes aside, Series EE bonds and Series I bonds can’t be redeemed within the first 12 months of issuance, and there are penalties for cashing them in prior to the five-year mark. However, both are moot points, since the youngest Patriot Bond is seven years old by now.

How do I redeem my bond and can I take it all?

The easiest and fastest way to redeem a Patriot Bond is at a local financial institution. Most can handle the job, though each bank has different policies regarding how much you can redeem per transaction. You can also convert paper Patriot Bonds to electronic bonds and cash them in at your convenience. These funds can be deposited into a specified checking or savings account.

Going the electronic route also means you can redeem as much or as little as you like, as long it exceeds $25 and you leave a minimum of $25 in your account. Just keep in mind that if you take a partial redemption, you’ll only be paid interest on the amount you redeem.

‘I have a Series I savings bond. Do I cash this in differently?’

Series I savings bonds are not guaranteed to double after 20 years, and they earn interest a little differently than Series EE bonds. They actually come with a fixed interest rate and an inflation rate.

“When you purchase an I bond, the fixed rate will remain the same throughout the life of the bond until you redeem it or until it matures,” said Tumin. “The inflation rate will change every six months. The treasury announces new inflation rates every May 1 and November 1.”

Still, when it comes to redeeming them, they’re not all that different from Series EE bonds. Most local financial institutions can process paper I bonds; alternatively, you can mail them in. Electronic I bonds can also be redeemed directly through TreasuryDirect. However, you aren’t able to cash them in within 12 months of issuance. In addition, if you redeem them before five years have passed, the final three months of interest will be withheld. (Savings bonds are designed to be long-term investments; the penalty is meant to deter people from redeeming them early.)

Find out how much your Patriot Bond is worth

If you’ve converted your Patriot Bond to an electronic bond, the current value should be available in your account. You can also use this TreasuryDirect online calculator to determine how much your paper savings bond is worth. But make sure you keep note of the following when calculating the value of EE bonds issued between May 1997 and April 2005: these bonds were assigned a variable interest rate — not a fixed one — that changed twice a year.

Once you’ve determined the value of your Patriot Bond, take a big-picture look at your investment portfolio to decide the best time to redeem it.

Comments
Locus
Locus   |     |   Comment #1
As the national debt grows I'm not sure I would trust that "guaranteed to double in value" promise from the government.......Just wait & they will change the rules......all the while explaining to us why it's such a good thing.......who knows what will happen in 20 years......No.
deplorable 1
deplorable 1   |     |   Comment #4
That's like saying you don't trust the FDIC insurance either. This is the safest thing you can invest in.
Never Trump Republican
Never Trump Republican   |     |   Comment #11
#4: Wrong.

FDIC insurance is nowhere close to being "public debt". There is nothing in constitution or the amendments about FDIC.

FDIC is limited to some paltry amounts like 250k for individual within a financial institute. There is no limit imposed on the amounts of "public debt" owned by an individual.
#10 - This comment has been removed for violating our comment policy.
   
      |     |   Comment #19
The gov't doesn't have to change the rules since they own the printing press, though if they continue to use the press too much then inflation will be the thing that eats away at the doubled [numeric] value.
The Skeptic
The Skeptic   |     |   Comment #35
That's absurd. The Treasury would never dare to change the rules in midstream - no one would ever buy U.S. Government securities again.
RonPaul
RonPaul   |     |   Comment #2
Is it just me or does this article seem unclear and confusing? It says guaranteed to double in 20 years but pays interest for 30? How exactly does this work? You have to redeem them after 30 years instead of it automatically maturing? Is a series I similar to a TIP? Not a helpful article IMO
anonymous
anonymous   |     |   Comment #8
Re #2, in general I think the article is nicely written and it's good to have a discussion about savings bonds every once in a while.

But, I do agree with you on that point in the article, where it says "but you’ll get an even better return if you can hold out 10 more years," the article is very confusing there. Yes, a EE bond will double in value (at 17 or 20 years) and thereafter continue to pay interest until 30 years. But the interest rate between year 20 and 30 depends on when the bond was issued, etc., and I think that rate has not even been set yet if the bond hasn't doubled in value yet. So, everyone should review the rate on their bonds after original maturity (= bond doubles in value) and decide if the interest rate is worth to continue to hold the bond.

If someone holds a bond to 30 years, the interest needs to be reported at that time. (Not cashing in the bond does not extend the time to report the tax.) So, there is a risk in holding a bond "too long" and forgetting to report tax in a timely manner.
The Skeptic
The Skeptic   |     |   Comment #37
What the writer was getting at with the holding out for 10 more years was this: the actual rate that existing EE Bonds were earning for a long time was way below the required averqge rate of 3.5% over the first 20 years, so a much more interest will be earned in the last 10 years while the bonds play catch-up to the 3.5%. Example: suppose you invested $10,000 in EE Bonds ten years ago, in January 2009. Because of very low interest rate environment over the last 10 years, those bonds today are worth only $11,376 (per the Treasury's online calculator), so the average annual interest rate over those 10 years was only 1.376%. For those bonds to earn an average of 3.5% over the first 20 years, for the next 10 years the bonds will need to earn interest of ($10,000 - 1,376 = ) $ 8,624 over the next 10 years, for an average annual rate of 8.624%! And. because rates right now are nowhere near that rate, unless and until the actual rate does reach 8.624% (which may never happen), the further you go down that last 10 year line the higher thec effecive interest rate will be. For people who invested in EE Bonds ten years ago, it makes no sense to not hold on tp the bonds until the first 20 years are up. After that it would depend on what the current rate the bond pays versus what the marketplace will then be offering.
anonymous
anonymous   |     |   Comment #43
#37, I'm not sure if that's what the article meant, because nowhere did it mention that it's talking about bonds issued 10 years ago. In the same sentence, it talked about bonds issued 18 years ago. But your point is well taken, yes, a 10 year old EE bond will have a much higher rate over the next 10 years than its stated interest rate!
RZ
RZ   |     |   Comment #3
EE bonds are purchased at half of their face value. In 20yrs they can be redeemed for face value. Thereafter they continue to earn interest for up to 10 yrs. Keep in mind that the accrued interest in paid biannually so if the bond is redeemed prior to the pay date you will forfeit the accrued interest. My 28 y/o EE bonds are still yielding 4% per year for the final two years left
deplorable 1
deplorable 1   |     |   Comment #5
Smart to hold them for 30 years if you are getting a decent rate. The last time I bought EE bonds they were yielding 5-6%. Now days I wouldn't touch these.
dollarsncents
dollarsncents   |     |   Comment #7
Unfortunately, those EE bonds yielding 5-6% have long since quit paying any interest at all. All that I held were cashed in at the end of their 30 year cycle. Most of them were gifts to me as a child each birthday or for Christmas. Not large denominations by no means, but they all added up.
#6 - This comment has been removed for violating our comment policy.
Never Trump Republican
Never Trump Republican   |     |   Comment #9
I do not have a problem with full-faith-n-trust of our Government, and neither in getting approximately 3.52% for 20 years. In short I will buy "EE" without an iota of worry/doubt/concern.
#12 - This comment has been removed for violating our comment policy.
anonymous
anonymous   |     |   Comment #16
Now, I think this has been mentioned before ... there is some concern about TreasuryDirect that the Treasury won't make someone whole again if their TD account were to be compromised and emptied. This does not apply to paper bonds, these can be re-issued if lost or stolen. So, paper bonds may be safer than holding the bonds in TreasuryDirect.
Never Trump Republican
Never Trump Republican   |     |   Comment #18
#16 Is Each and every single T bill/note/bond has a unique number, (just like every US Currency Paper Note has a unique number). Therefore tracking each T bill/note/bond from its issuance to its maturity/redemption is under the control and audit of the US Treasury.

The bonds issued by Treasury Direct are not - repeat not - anything like bearer bonds. Actually "Tax Equity and Fiscal Responsibility Act of 1982" essentially put an end to issuance of any government bonds (even the Municipal Bonds) in the US that are bearer bonds.

Therefore once again - I will buy "EE" without an iota of worry/doubt/concern. That includes worry/doubt/concern of theft as well !!
Steve
Steve   |     |   Comment #26
You're not addressing the issue the poster raised. This issue has been widely discussed on bogleheads. Whether you are worried about it is your choice, but you need to directly address the issue being raised.
Dr Dumb
Dr Dumb   |     |   Comment #27
Steve, perhaps you can explain how a theft from Treasury Direct would work.

Because there is no market, they could only be transferred to another Treasury Direct account. Right? Is that possible? Because my recollection is transfers have to be made in writing. How does theft from Treasury Direct work, theoretically?
Luvcd
Luvcd   |     |   Comment #28
If one has their/other's password (good hacker!), etc. the payee financial institution can be changed.
AnnO
AnnO   |     |   Comment #30
This (changing the linked bank account on a TD account) used to require submitting a paper form with a bank signature guarantee. If they have lightened up on that, it does reduce security.
Get Real
Get Real   |     |   Comment #33
AnnO You are correct. You have to fill out a form and have a bank stamp to change forms.

The logon requires you to click on the keys with a mouse or pointer. Also you need an access code doe each login that is emailed to you. I'm not worried.

Also like when TD has your bonds they notify you when they mature.
Steve
Steve   |     |   Comment #42
The days of needing to fill out a paper form with a bank medallion are long over:
https://www.treasurydirect.gov/indiv/help/TDHelp/howdoi.htm#addedit
RJM
RJM   |     |   Comment #21
I have about a dozen of these I probably need to do something with. At one point I was going to put them all online in electronic form but then I read something about risks in doing that or something.

Also unclear exactly where I can cash them in at. Are credit unions ok? Because I don't use banks.

I have some EEs and some I Bonds. I remember buying them and getting credit card rewards for awhile there.
DOA
DOA   |     |   Comment #22
So if one was to purchase a $10K amount of electronic IBonds, I am not finding any good reason to buy the $10K amount in smaller multiples of $1K or $5K IBonds.
RJM
RJM   |     |   Comment #23
I have no idea why I bought so many small amounts. A total of 23. I must have just used extra cash here and there or something? Most of mine are I bonds.

Not an insignificant amount of Interest has been accrued last I checked about 18 months ago.
My largest EE is set to double 4/19. (Supposedly the early ones double in 17 years I think?

Im not inclined to hold any of these 30 years.

Probably going to make a note to check my income in Dec and see if that's a good time to cash some in. Just

My cost was $19,600 with a vale of $32,500 on 6/17.
whew !
whew !   |     |   Comment #29
# 23 RJM
have you cashed these type of securities before? i did at at bank and 1 at a CU.
the 40 EEs i did at the bank had to be processed one by one done by hand.
i had to wait through several cups of coffee :)
RJM
RJM   |     |   Comment #34
No. Might have to sign up & do them online if its that much of a problem.

I guess the first day of the month is the best when redeeming or what?
Get Real
Get Real   |     |   Comment #36
RJM Look at the issue date. If 30 years have passed they are no longer earning intrest.

You may have small denomination honds if the were gift or done via payroll.
RJM
RJM   |     |   Comment #40
Mine are not 30 years. But one is coming up on 17 years I guess and if my notes are correct, it doubles then. I think in April.

Not gift or payroll.
Get Real
Get Real   |     |   Comment #41
The EE bonds that just matured for me were paying 4%. So I would check what the bonds are paying.
AnnO
AnnO   |     |   Comment #31
Yes, some credit unions do handle savings bonds. A military-related one is most likely to do so, since many military members used to buy savings bonds with automatic paycheck deductions.
The Skeptic
The Skeptic   |     |   Comment #38
Until some time ago most banks had a policy of cashing out Savings Bonds for (theor own!) customers, but not many do that anymore. You may want to ask your bank whether or not they will do so. Otherwise you will need to mail the bonds to the Treasury (you can find their address online), together with a form that needs to be completed and signed. You will need to allow up to 2 weeks to receive your redemption check.
Fix the Article
Fix the Article   |     |   Comment #25
Series EE bonds issued in 2001 were guaranteed to double in 17 years (not 20 years). Fix the article.
AnnO
AnnO   |     |   Comment #32
"Taxpayers aren’t required to report the interest earned on a Series EE bond until they either redeem it or reach the 30-year mark — whichever comes first."

That's what they say, but the way it works in reality is you can just report the interest on the year in which you redeem the bond. Whether you redeem it through a local bank/CU or by mailing it to the Treasury, you will receive a 1099-INT for it with the current year's date, not the year you were supposed to redeem it if you hadn't forgotten about it. If you report the interest before redeeming it, you'll have a 1099 mismatch to have to explain later.
The Skeptic
The Skeptic   |     |   Comment #39
The tax rules do require that interest be reported no later than the date of redemption, but the owner can elect to report the interest annually. The default is to defer the tax until redemption, but after the election to report annually is made, that election becomes fixed and cannot be revoked in a later year.

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