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Although older savings bonds have interest credited twice a year, newer bonds accrue interest every month. How the U.S. Treasury handles the crediting of bond interest indicates how fast a bond will increase in value.There will be an interest penalty if you cash in a bond within the first few years that you own it.
Accrual and Compounding
Series EE and series I bonds both earn interest monthly, and the interest is compounded semiannually. The semiannual compounding means a bond will earn the same amount of interest each month for six months. Then a new amount of monthly interest will be calculated on the new higher value, and that earning amount will accrue for the next six months.
All bonds of the same denomination issued in a particular month earn the same amount of interest each month. It does not matter when during the month the bond was purchased.
Guaranteed Denomination Value
Series EE savings bonds issued since June 2003 are guaranteed to double in value in 20 years. Older bonds have a faster time-to-double period. This means the $100 bond purchased for $50 will be worth the $100 no later than 20 years after purchase.
If a savings bond has not earned enough interest to double at the 20-year point, the Treasury will make a one-time interest credit to bring the bond up to the guaranteed value. It takes about a 3.5 percent interest rate to double in 20 years, so savings bonds earning a lower rate than about 3.5 percent will get the extra interest credit at the 20-year point.
If a savings bond is redeemed within the first five years after purchase, a penalty will be charged against the bond's accrued value. The penalty will be the most recent three months worth of interest earnings. After the bond's five-year anniversary, the full current value will be paid if you cash in a savings bond.
Older Savings Bonds
The Treasury switched to monthly interest crediting in May 1997. Bonds issued before that have interest credited every six months based on the month of issue. For example, a bond issued in February 1996 will earn interest in February and August each year. Savings bonds reach final maturity 30 years after issue, and they stop earning interest at that point.
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