Investing in savings bonds is becoming popular again, One in every five Americans will purchase a savings bond. There are advantages and disadvantages to choosing savings bonds over investing in the stock market. But there are also distinctions between the different types of savings bonds themselves. For the sake of this article, we will discuss the Series HH and the Series EE savings bonds.
The Series EE savings bond replaced the Series E bonds. They accrue interest based on the current market rate and can be cashed after six months. Series EE savings bonds are exempt from all state and local taxes. Also, if they are used to pay for college expenses, they are exempt from federal taxes as well. Series EE savings bonds are issues both on paper and electronically. Keep in mind that only paper bonds are available at a discount from their face value. Electronically purchased EE bonds are purchased only at face value.
Series HH savings bonds, unlike the EE series bond, do not increase in value. You can only purchase the Series HH savings bond in exchange for Series EE or E and Savings Notes. Once the HH savings bond is issued, with payment for the full face value, interest is paid every six months. The interest can be paid directly into your checking or savings account. The interest is paid at a fixed rate. That rate is set the day the HH savings bond is purchased. This rate is fixed for the first ten years of the bond. After ten years that interest rate is reset.
Differences in the two start with the purchase amounts. Series EE savings bonds are purchased at half the face value in a minimum increment of $25. You are limited to buying $5,000 of face value bonds per calendar year. Series HH savings bonds can only be purchased at face value in denominations from $500 to $10,000. Unlike the Series EE there is no limit on how much can be purchased.
Another difference is the way in which these savings bonds mature. When a savings bond matures you are paid the original amount of your investment and the interest. Series EE bonds mature after 30 years. They accumulate and pay interest, as well as increasing in value, for this amount of time. This can substantially increase its value over the amount originally paid. Series HH savings bonds mature after a period of 20 years. They will only pay the face value plus the remaining interest at the end of that period.
Now knowing the differences and similarities between the Series EE and Series HH savings bonds, you will be better able to decide which is the best bond to invest your money in. The institution that you are buying your savings bonds from should also be able to resolve and concerns you may have. Investing in savings bonds is one of the most secure ways to protect your investments, and with the tax breaks you can get there is no reason to delay.