7684 / What is a Patriot Bond? How are Patriot Bonds taxed?

Patriot Bonds are regular Series EE Savings Bonds specially inscribed with the legend “Patriot Bond.” As with regular Series EE Savings Bonds, Patriot Bonds are sold at one-half of face value ($50, $75, $100, $200, $500, $1,000, $5,000, and $10,000). Patriot Bonds earn 90 percent of five-year Treasury security yields. Patriot Bonds increase in value monthly, but interest is compounded semiannually. Interest on Patriot Bonds is exempt from state and local income taxes; federal tax can be deferred until the bond is redeemed or it stops earning interest (in 30 years). Patriot bonds can be redeemed any time after six months for issue dates of January 2003 and earlier; bonds with issue dates on or after February 1, 2003, can be cashed any time after 12 months. Depending on interest rates, bonds may actually reach face value anywhere between 12 and 17 years. However, a three-month interest penalty is applied to bonds redeemed before five years. Patriot Bonds can be purchased in person at banks or credit unions, or on the Internet at: http:www.savingsbonds.gov.¹

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1. Treasury Press Release, Treasury Department Unveils Patriot Bond on 3-Month Anniversary of September 11 Attacks (Dec. 22, 2001).