Savings Bonds Characteristics

• Both EE and HH savings bonds were designed by the U.S. government as a way for investors to safely earn interest, as both principal and interest were backed by the full faith and credit of the government. Savings bonds are a popular investment for children, as they can be owned by minors, unlike most other types of investments. The government discontinued the issuance of HH bonds on September 1, 2004. As of that date, HH bonds could not be purchased, reinvested or converted into EE or E bonds.
  
  

Interest

• HH savings bonds were purchased at face value, and paid interest income every six months until maturity or redemption. HH bonds paid the fixed rate of interest determined on the day of purchase, and on the tenth anniversary of the bond, the interest rate would change to the then-current HH bond rate. EE bonds purchased electronically after May 1, 2005 pay a fixed rate of interest monthly, with the rate determined at the time of purchase.
  
  Paper EE bonds are issued at one-half of their face value, and they are guaranteed to double after a specified number of years. Bonds issued after May 31, 2003 are guaranteed to double after 20 years. After doubling, EE bonds earn a fixed rate of interest.
  
  

Duration and Liquidity

• HH bonds have an interest-earning period of 20 years. EE bonds earn interest for 30 years. HH bonds had a required holding period of at least six months, while EE bonds must be held for at least one year. EE bonds sold within five years of purchase are subject to a deduction of three months of interest from investor proceeds.
  
  

Taxation

• Interest on all savings bonds is exempt from state and local taxation. EE bonds have additional tax benefits. All or part of the earnings on EE bonds can be excluded from income if the proceeds are used for post-secondary education and fees. Additionally, federal taxes on EE bonds can be deferred until redemption or for 30 years, whichever is shorter.
  
  

Recent Rates

• For EE bonds issued through April 30, 2010, the current rate of interest is 1.2 percent. The last declared rate for HH savings bonds was 1.5 percent.