HOW MANY TYPES OF GOVERNMENT SAVINGS BONDS ARE THERE, AND WHAT’S THE DIFFERENCE BETWEEN THEM?
While the U.S. government has issued 13 types of savings bonds, there are currently only two series available for purchase through the U.S. Treasury Department: Series EE bonds and Series I bonds. U.S. savings bonds are nonmarketable securities, which means you can’t resell them unless you’re authorized as an issuing or redeeming agent by the U.S. Treasury Department. Savings bonds are guaranteed by the federal government as to the timely payment of principal and interest.
You can buy Series EE bonds and I bonds in any amount from $25 up to $10,000, which is the maximum amount you can purchase for each bond type per calendar year. In other words, you may buy a total of $10,000 annually in both EE and I bonds, for an annual total of $20,000 for the two types combined.
Series EE bonds earn a fixed rate of interest as long as you hold them, up to 30 years. You’ll know the interest rate the bond will earn when you buy it. The U.S. Treasury announces the rate each May 1 (for new EE bonds issued between May 1 and October 31) and November 1 (for new EE bonds issued between November 1 and April 30).
Series I bonds are similar to EE bonds, but I bonds offer some protection against inflation by paying interest based on a combination of a fixed rate and a rate tied to the semi-annual inflation rate. The fixed rate component doesn’t change, whereas the rate tied to inflation is recalculated and can change every six months. The total interest (fixed and inflation adjusted) compounds semi-annually.
In any case, the interest on EE or I savings bonds isn’t paid to you until you cash in the bonds. You can cash in EE bonds or I bonds any time after one year, but if you cash them out before five years, you lose the last three months of interest.
The interest earned on both EE and I bonds is generally exempt from state income tax but subject to federal income tax. Interest income may be excluded from federal income tax when bonds are used to finance higher-education expenses, although restrictions may apply.