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US Savings Bonds

US Savings Bonds

US government securities can be divided into those that can be traded and those that cannot. The bonds that can be traded are called marketable: after they are bought, investors can sell them on the secondary market through exchanges or over the counter. The secondary market is very active, and bond prices fluctuate with the prevailing interest rates. There are also non-marketable government securities. Only the federal government can redeem these. They do not trade on secondary markets. These are the US savings bonds.

The three types of non-marketable bonds are called Series EE, Series HH, and Series I bonds.

Series EE bonds

Series EE bonds are the savings bonds that have been popular for decades. They do not distribute interest periodically, as many other bonds do (interest is added to an EE bond monthly and paid when you cash the bond). Paper bonds were originally purchased at a discount from the face value (par). The discount was calculated using the bond’s interest rate and years to maturity. Investors purchased them for less than their face value and let them build up to full face value at maturity. Paper bonds are no longer available. EE bonds sold electronically, however, are now sold at their face values rather than at a discount.

The minimum face value of a Series EE bond is $25. The maximum face value possible is $10,000. One can purchase Series EE bonds online from treasurydirect.gov. The investor can allow the accrued interest to be taxed each year, or he or she can defer it until the bond is redeemed.

Series HH bonds

Series HH bonds, which are extant but no longer being issued, are savings bonds that pay interest twice per year. The denominations range from $500 to $10,000. They normally mature in ten years but can be extended to twenty. Series HH bonds were originally only obtainable as exchanges of Series E or Series EE bonds, but are no longer available new as of August, 2004.

They come with fixed rates of interest.

Series I bonds

Series I bonds also are sold at their full face value, beginning with a minimum denomination of $25 and increasing in increments of one cent. Like Series EE bonds, you receive the interest earned when you cash the bonds; however, you must hold EE and I bonds at least six months (12 months if purchased in February 2003 or after). If you cash them in before five years, you will lose the last three months of interest. I bonds earn interest for 30 years.