Patriot Bonds: You'd Have to Be Patriotic to Buy One

Dec 11, 2006 by

(For the purpose of this article, the term Savings Bond will refer to a United States Savings Bond.)
When you buy a savings bond, you are buying government debt. Savings bonds are issued directly to their purchaser, and are non-transferable. If you buy a savings bond on eBay, all you have bought is a decorative sheet of paper, as bond ownership is registered with the U.S. Treasury. Once purchased, a savings bond cannot be resold.

Ever since the September 11th, Series EE savings bonds have been referred to as “Patriot Bonds”. What’s so patriotic about buying them? You enable the government to borrow your money at a very low interest rate. (Patriot bonds don’t do anything directly to fund the war on terror; the proceeds from selling them are deposited in a general fund that supports all kinds of government activities.) Patriot bonds are sold at half of their face value, and take varying numbers of years to mature. So, if you receive a $100 Patriot Bond for Christmas, the person who bought it spent $50.

How big is the return?
Patriot Bonds issued before May 2005 pay 90% of market yields on five year treasure securities, while those issued after May 2005 pay a fixed interest rate. The value of Patriot Bonds increases monthly, but interest is compounded only semiannually. Patriot Bonds cease to earn interest after 30 years. Interest earnings on Patriot Bonds are not taxed on the state or local level, but are taxed on the Federal level at the time the bond is cashed. Series EE Savings Bonds (the class of bonds including Patriot Bonds) have become steadily a worse investment over time. Series EE Bonds issued since June 2003 are guaranteed to take twenty years or less to reach their face value! From 1995-2003, they were guaranteed to do so in only 17 years. According to The Law of 72, you can determine the interest rate on an investment by dividing 72 by the number of years that it will take to double your money. Thus, if it takes a Patriot Bond 20 years to double your money, 72/20 = 3.6%. While this rule provide only an approximation, coincidentally, the current interest rate on savings bonds issued between now and 2007 is a fixed rate of 3.60%. So, buying a savings bond today is like buying a 20 year CD that pays 3.60%. Meanwhile, a five year CD at any reasonable bank at the moment pays at least 5%. Obviously, interest rates may drop at some time in the future, but for this measly a return, you’d have to be pretty patriotic to be willing to buy a savings bond.

When can a Patriot Bond be cashed?
A Patriot Bond cannot be cashed until a year after it was issued. If a Patriot Bond is cashed before it reaches five years of age, the last three months of interest earned on it will be forfeited.

To learn more about Patriot Bonds from the Bureau of the Public Debt, see:


  1. So I guess the point of your article is that EE/Patriot bonds are a really low performing investment? I agree 3.6% is a bad return and so it pains me when I hear some schools giving students savings bonds as awards… but what should they give instead? An I-Bond? A gold piece? For the student, it’s a 100% free money, so he or she can’t complain and at least there are tax advantages on some EE bonds (issued during a certain period) when you use them to pay college.
    This article points out some other advantages:

  2. They could always give cash. It’s the same argument that I tried to make against gift certificates.

  3. Kim

    In my experience, most Savings Bonds are given as gifts, such as for birthdays, graduations, communions, etc.. So in essence, this is “free money” to the recipient as it is a gift, and it is helping the government in the end. I do agree that it would not be the wisest investment for someone to make for themselves when they could easily go open a CD at a local bank. But, as far as CD’s go, sometimes there are minimums in order to invest in the CD that a person might not have, in that case a bond wouldn’t be that bad of an investment.

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