U.S. government bond earning variable, market-based interest that is sold to the public through depository financial institutions and Federal Reserve Banks. Savings bonds are issued in denominations from $50 to $10,000 and are available in two forms. Series EE bonds, replacing the Series E bond in 1980, are sold at discount, and pay a rate of interest calculated at 85% of the market average on Treasury securities maturing in five years, or the rate in effect when the bond was purchased, whichever is higher. Series EE Bonds purchased after 1989 are exempt from federal and state taxes if used for education expenses. Savings bonds issued after April 1995 have no guaranteed minimum yield. Savings bond yields are adjusted twice a year, on May 1 and November 1.
Series HH Bonds, sold in denominations of $500 to $10,000, are available only from a Federal Reserve Bank or the Commissioner of Public Debt. These bonds can be purchased in exchange for maturing Series E and Series EE Bonds, and U.S. Savings Notes (called Freedom Shares). Series HH Bonds are current income bonds, paying interest semiannually and have a term to maturity of ten years. Interest on Series EE Bonds is reportable annually, but reporting may be deferred until the bonds are cashed or at the maturity date. Series EE bonds issued after May 2005 will pay a fixed rate of interest. Series HH Bonds pay semiannual interest and also permit bondholders to defer federal income tax until the HH Bonds are sold or mature. Savings bond interest is subject to federal tax in the year a bond is redeemed, but is exempt from state and local taxes.
U.S. government bond issued in face valuedenominations ranging from $50 to $10,000. Issued at a discount, these bonds are redeemed at face value at maturity. From 1941 to 1979, the government issued Series E Bond. Since 1980, Series EE and Series HH Bonds have been issued.
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.
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.