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U.S. Savings Bonds

The United States Government issues two different types of savings bonds. The Series EE and Series I. Series EE bonds can be purchased electronically through a Treasury Direct account for face value and paper Series EE for half their face value. A fixed rate of interest is earned on these bonds over a thirty year period; they are guaranteed to double in value in twenty years. This type of bond that was issued before May of 2005 earns variable interest rates that are set two times a year.

Series I bonds are sold at face value also and earn an interest rate that is guaranteed to exceed the rate of inflation during its term. There is a Series HH bond that is no longer being issued but if you have one these earn interest until they mature.

Do not confuse United States Savings Bonds with United States Treasury Bonds. The difference is that there is no secondary market for savings bonds. They cannot be bought and sold. Once you buy them and they are issued in your name they must be redeemed back to the government, usually through some type of financial institution, like a bank.

Interest on United States Savings Bonds is exempt from state and local taxes. You do not have to pay federal tax until you cash them in. The interest may be tax exempt at that point anyway. If you use the bonds to pay for higher education and your income falls in the range set by the federal guidelines you may not have to pay interest when you cash it in either

United States Postal Service Bonds were the very first bonds but in 1935, United States Savings Bonds were issued as a safe investment for everyone. The first ones were series A, followed by series B, C, D, E, EE, F, G, H, HH, and I, in that order. President Franklin D Roosevelt bought the first Series E Bond in May of 1941. A special version of Series EE bonds, called Patriot Bonds is a post September 11 war bond but never got the broad acceptance that the series E war bond did. The series E are associated with the war bond drives of World War II; they did continue to be sold until June 1980.

Most all savings bonds cost only a percent of the bonds value at purchase. This is usually 50%, so in other words you get them for half price. There is also a program called Easy Saver that allows you to buy savings bonds with automatic deductions from your bank account.

Savings Bonds can be purchased in values of $25, $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. The government allows each individual to purchase up to $15,000 in bonds a year.

Series E/EE bonds have interest added to them periodically. The longer you hold the bond the more valuable it becomes. If you keep it the full thirty years, it is worth face value. Series H/HH bonds have interest paid on them every six months.

Series I bonds are different. These are sold at face value and increase in value monthly. Interest is compounded semi-annually. They can be turned into cash any time after six months.

So simply put a bond is a loan of sorts. It is a legal contract between issuers (governments, agencies) who have an obligation to repay the loan with interest over a certain amount of time. Unlike your car loan though bonds are bought, sold and traded daily. Do not confuse with stocks though.