U.S. government bond issued in face value denominations ranging from $50 to $10,000. From 1941 to 1979, the government issued Series E Bonds. Starting in 1980, Series EE and HH bonds were issued. Series EE bonds, issued at a discount of half their face value, range from $50 to $10,000; interest bearing Series HH bonds range from $500 to $10,000. Series EE bonds earn interest for 30 years; Series HH bonds earn interest for 20 years. Series EE bonds, if held for five years, pay 90% of the average yield on 5-year Treasury securities based on the previous six months. Series HH bonds are no longer issued. For many years, the government guaranteed a minimum yield on savings bonds. This yield decreased from 7.5% to 6% and then to 4%. The guaranteed minimum feature was dropped in May 1995, and bonds issued on May 1, 1997 or later and held for less than five years are now subject to a 3-month interest penalty. For example, a bond cashed in after 18 months would receive 15 months' worth of interest. Savings bond yields are readjusted every six months, on May 1 and November 1.
Series I bonds provide a return that rises and falls with inflation. I bonds are issued in face amounts from $50 to $10,000. The interest on an I bond is determined by two rates. One, set by the Treasury Department, remains constant for the life of the bond. The second is a variable inflation rate announced each May and November by the Treasury Department to reflect changes in the Consumer Price Index reported by the Department of Labor. I bonds earn interest for 30 years and interest is added monthly and paid when the bond is redeemed.
The interest from savings bonds is exempt from state and local taxes, and no federal tax on EE bonds is due until redemption. Taxpayers meeting income qualifications can buy EE bonds to save for higher education expenses and enjoy total or partial federal tax exemption. This applies to individuals with modified Adjusted Gross Incomes between $61,200 and $76,200 and married couples filing jointly with incomes between $91,850 and $121,850. Income levels are adjusted for inflation annually.
