What Is a Patriot Bond?

Patriot bonds are special edition Series EE Savings Bond issued by the U.S. Treasury from December 2001 until December 2011. They were created to foster national unity and recovery while funding the government’s global anti-terrorism programs or defense efforts in response to the 9/11 attack. 

Like standard EE bonds, Patriot bonds are low-risk investments with interest that accrues over time. However, their symbolic significance of patriotism and solidarity makes them unique. If you’re holding a Patriot Bond, you may want to understand what it is, its purposes or functions, its worth and how to redeem it. Read on to find out how it compares with other savings bonds.

Investment Characteristics

As with all Series EE bonds, patriot bonds were issued at half their face value. So, you would've paid only $50 for a Patriot Bond with $100 printed on it. The bond accrues interest over time, eventually reaching its $100 total face value or more at maturity. Patriot bonds bought before May 1, 2005, have a variable rate that may change every six months. Those purchased after that date maintain a fixed rate for at least 20 years.

Interest accrues monthly and compounds semiannually, meaning that the U.S. Treasury applies the bond's interest rate to a new principal every six months. As such, your new principal equals the sum of your prior principal and your earned interest in the previous six months. Thus, your bond's value increases consistently from interest earnings and growing principal. Patriot bonds are guaranteed to double in value over its 20-year initial term. Suppose the accrued interest rate is insufficient to achieve that target. In that case, the Treasury will make a one-time pay adjustment on the bond's 20th anniversary to account for the shortfall. 

Interest from Patriot bonds is taxed for federal income but not at state or local levels. Furthermore, it is subject to federal estate, gift and excise taxes. Estate and inheritance taxes are also applicable at the state level. You can pay tax on your earnings annually as the interest accrues or defer it until redemption upon maturity. You may avoid paying federal income tax if you use your earnings to finance qualifying educational expenses.

Eligibility and Limits

You could purchase a Patriot Bond with as little as $25 or any amount above that to the penny not exceeding $10,000 in a calendar year. You could buy a bond for $25.53, $100.75, or any other specific amount up to the annual limit of $10,000. The limit applies to the Social Security Number (SSN) of the first person named on the bond. Patriot bonds could be purchased by U.S. citizens and official U.S. residents regardless of age. 

Parents, guardians, or other adults could purchase Patriot bonds for minors. Suppose you buy a Patriot Bond for your child (i.e., your child is the sole owner). In that case, you may report the interest on the bond and pay the applicable taxes on your tax return. All U.S. government employees can also buy Patriot bonds regardless of their citizenship status and location. 

Redemption and Maturity

You can cash in or redeem your Patriot bonds under similar terms as any Series EE bond. Although you can redeem these bonds precisely after 12 months of ownership, it is advisable to cash in (redeem) after at least five years. This is because you lose the last three months of interest when you cash in the bond in less than five years. For instance, if you cash in the bond after 21 months of ownership, you'll only earn or receive the first 18 months of interest. 

However, when you hold the bond for at least five years, the penalty disappears, and you'll receive the total amount of your earned interest. The longer you wait, the better your returns and interest earnings. Depending on your financial situation, you can wait until the 30-year maturity period to redeem your Patriot bonds. The easiest and fastest way to redeem your Patriot Bond is by depositing it in your local bank or credit union alongside your ID and bank account details. 

If you can't find a financial institution around you, follow these steps to receive your money.

• Send a signed FS Form 1522 to the U.S. Treasury
• Have your signature certified if you’re redeeming over $1000
• Include any additional required documentation, such as proof of identity or ownership
• Mail your completed form, the unsigned bond and any additional documents to the address provided on the form 

You can still redeem your Patriot Bond using its serial number if you don't have the bond in your possession. You might still redeem your bond with the following information, even without your serial number.

• Your year and month of  bond purchase 
• Your full name as it appears on the bond
• Your residential address, including city and state 
• Your Social Social Security number or Taxpayer Identification Number that appears on the bond

Since each Patriot Bond is registered to a specific owner, providing this information can help you redeem your bond. Suppose you've converted your Patriot bonds to an electronic bond. In that case, you can redeem it online by logging into your Treasury Direct account and clicking the link for cashing securities. Upon redeeming your Patriot Bond, you'll be sent the 1099-INT the following January for tax filing. 

How to Purchase Patriot Bonds

The U.S. Treasury issued paper EE bonds as a "Patriot Bond" for exactly 10 years (December 2001 to December 2011) post-9/11, with sale proceeds deposited into general funds for national recovery, defense and anti-terrorism purposes. The bonds were essentially paper Series EE savings bonds with the words "Patriot Bond" printed on the top half of its certificate between the Social Security Number (SSN) and the issue date. You can easily spot these words if you purchase any paper bonds via a financial institution after Dec. 10, 2001.

In 2012, the Treasury stopped issuing paper savings bonds, effectively terminating the issuance of Patriot bonds. It also means that financial institutions no longer issue Series EE bonds in paper form. However, you can still redeem or convert your paper Patriot bonds into electronic bonds. If you want a similar investment option as Patriot bonds, consider purchasing the standard Series EE Savings bonds and Series I Savings bonds online via TreasuryDirect. 

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Comparison with other Types of Similar Savings Bonds

Patriot bonds is a special edition Series EE bond — an ultrasafe, low-risk, and nonmarketable interest-bearing U.S. government savings bond. Nonmarketable means you cannot trade these bonds in the open market. All Series EE bonds carry a guarantee to double in value over their initial 20-year term, and most have interest-paying lives extending up to 30 years from issuance. The coupon rates for these bonds are based on the percentage of the long-term Treasury rates and are determined at the time of issuance. 

Series EE bonds are one of the two savings bonds issued by the U.S. Treasury. The other type is Series I savings bonds. Although very similar, both differ in a few ways. Series I bonds combine a fixed interest rate with an inflation-adjusted rate that changes every six months. The bond's rate is adjusted based on changes in the Consumer Price Index (CPI). Unlike Series EE bonds, this bond aims to protect against inflation. 

Besides the purchase limit of $10,000 per year per Social Security Number, you can also purchase an additional $5,000 Series I bonds if bought with your federal tax refund. This amounts to a $15,000 annual limit compared to $10,000 for Series EE bonds. However, there is no guarantee that Series I bonds will double in value, unlike Series EE bonds. Series I bonds have also been primarily purchased electronically, unlike Series EE bonds, which used to have a paper form. 

Usage and Trends

Patriot Bonds surged in popularity post-9/11 as Americans sought ways to support their country during such a historic crisis. Purchasing these bonds was an avenue to contribute to the national recovery efforts and the fight against terrorism. However, the popularity of Patriot Bond has waned in recent years. The primary reasons encompass low interest rates, more attractive investment options, and a significant decline in the patriotic fervor that initially drove their sales. Again, the U.S. Treasury stopped issuing these bonds in 2012, reducing their visibility and appeal.

Key Takeaways

Patriot bonds are ultralow risk and safe investment choices that can deliver impressive returns or interest earnings over time. Like all bond types, you already know your returns or how much you'll get upon purchasing them. This predictability is why bond investing is attractive, unlike equities. Tax-deferred interest, a guaranteed minimum return, and exemption from state and local taxes are other reasons to consider the U.S. Series EE savings bond. Alternatively, you can buy Series I bonds, especially if your priority is inflation protection.

Frequently Asked Questions