- When you purchase a savings bond, you are loaning money to the government, which in turns pays you interest on the borrowed money. You can buy paper savings bonds at financial institutions such as banks and credit unions. "Electronic" savings bonds are sold online through Treasury Direct. You can purchase up to $5,000 per year each of Series I and EE bonds. The Treasury Department does impose a penalty of three months' interest if you redeem a savings bond less than five years after purchase. Recently, Treasury Direct introduced SmartExchange, an online facility that allows you to convert paper savings bonds to electronic bonds.
- EE savings bonds sold prior to May 1, 2005 have a variable interest rate based on market rates and Treasury yields. Since that time, all EE bonds have fixed interest rates that are good until the bonds mature. Paper EE bonds are sold at one-half the face value, starting at $25 (a face value of $50). Treasury Direct sells electronic EE bonds at face value in denominations starting at $25.
- The Series I bond is an inflation-protected bond. Each I bond has a composite interest rate. Part of the interest rate is a fixed percentage set at the time the bond is issued. The second component of an I bond rate is variable and is tied to the rate of inflation. If the inflation rate goes up, so does the interest rate on an I bond. Treasury Direct sells paper and electronic I bonds at face value, with denominations starting at $50.
- You may occasionally see references to series E, H or HH savings bonds. These are types of savings bonds that are no longer sold. Series E bonds are the predecessor to EE bonds. Series HH and H bonds are current income bonds. The government stopped selling them after Sept. 1, 2004. The distinctive feature of HH/H savings bonds is that interest is paid directly to the bond owner every six months by direct deposit to a bank account.
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