What Is a Series E Savings Bond and How Does It Work?

Series E savings bonds were a popular U.S. government savings vehicle. These bonds represented a straightforward way for individuals to lend money to the government, offering a secure savings option. They became a common fixture in household savings, known for their reliability and government backing.

Core Characteristics of Series E Bonds

Series E bonds were initially offered as “Defense Bonds” and later became known as “War Bonds.” These bonds were sold at a discount from their face value; for instance, a $100 bond might be purchased for $75. The difference between the discounted purchase price and the full face value represented the interest earned over the bond’s life.

The U.S. Treasury issued these bonds, considered a safe investment. Most Series E bonds were issued in physical paper form, with denominations ranging from $18.75 to $10,000. Their issuance continued as a retail investment until they were replaced by Series EE savings bonds.

Interest Accrual and Maturity

Interest on Series E bonds did not pay out periodically; instead, it accrued and was added to the bond’s value over time, compounding semi-annually. The interest rate applied to these bonds was not fixed for their entire term and could vary. The value of the bond, including accrued interest, was realized when the bond was redeemed.

Each Series E bond had an “original maturity” date, which was the point at which the bond reached its initial face value. Beyond this, bonds entered an “extended maturity” period, continuing to earn interest for additional years. However, all Series E bonds had a “final maturity” date, after which they stopped earning interest entirely. Depending on their issue date, Series E bonds reached final maturity 30 or 40 years from issuance.

Tax Considerations for Series E Bonds

Interest earned on Series E bonds is subject to federal income tax, but it is exempt from state and local income taxes. Bondholders have two options for reporting this interest for federal tax purposes. The common approach is the cash method, which defers reporting the interest until the bond is redeemed or reaches final maturity. This allows the interest to grow tax-deferred over many years.

Alternatively, taxpayers can elect to report the interest annually as it accrues, using the accrual method. If this election is made, all previously untaxed accrued interest must be reported in the year of the election, and this election applies to all bonds held by the taxpayer for all future years. It was possible to exchange Series E bonds for Series HH bonds to continue tax deferral.

A federal tax benefit allows for the exclusion of interest from Series E (and EE) bonds if the proceeds are used for qualified higher education expenses. This exclusion is subject to conditions, including income limitations and requirements that the bond was issued after 1989 and registered in the name of an owner who was at least 24 years old at the time of issuance. Qualified expenses include tuition and fees, but not room and board. Taxpayers must use IRS Form 8815 to claim this exclusion.

Redeeming and Managing Series E Bonds

Determining the current value of paper Series E bonds can be done using the TreasuryDirect website’s bond value calculator. To use this tool, individuals need to input the bond’s series, denomination, and issue date. This calculator provides an estimate of the bond’s current worth, including accrued interest.

To redeem paper Series E bonds, the method is often through a local bank or credit union where the bondholder has an account. Banks may require identification and that the bondholder’s name matches the name on the bond. If a bank cannot assist, bonds can be redeemed by mail through TreasuryDirect by submitting FS Form 1522.

Series E bonds had a minimum holding period before they could be redeemed. If a bond was redeemed before a certain period, a penalty of three months’ interest might be applied. For lost, stolen, or destroyed paper Series E bonds, replacement can be requested through TreasuryDirect by completing FS Form 1048. This form requires information about the bond and may require a certified signature. Replaced paper bonds are reissued as electronic bonds in a TreasuryDirect account.