Savings Bond Options: Patriot Bonds, Series HH, and Series I - dummies

Savings Bond Options: Patriot Bonds, Series HH, and Series I

Savings bonds are issued by the U.S. government. In the past, the United States Treasury Department offered three types of bonds. The Series HH bonds were discontinued in August 2004. Following the events of September 11, 2001, the U.S. government introduced the Patriot Bond, which is exactly like the Series EE bond. The following describes the different types of savings bonds:

  • Patriot Bonds (Series EE): You pay half the face value of a Series EE bond at the time of purchase, and you receive the face value when the bond matures. The interest rate isn’t fixed, so the length or term of maturity is variable. The minimum denomination is $50, and the maximum denomination is $10,000. Interest rates for Series EE bonds are 90 percent of the average interest rate on five-year Treasury securities. Currently the yield on Series EE bonds is about 2.66 percent.

  • Series HH: A Series HH bond pays interest directly to your account at a financial institution every six months. These bonds have fixed interest rates for 10 years and earn interest up to 20 years. Series HH bonds were available in denominations of $500, $1,000, $5,000, and $10,000.

    On August 31, 2004, the U.S. government discontinued Series H and Series HH bonds. This action may create an enormous tax bill for investors if they don’t immediately reinvest. To determine whether you need to convert your Series H or Series HH bonds, go to TreasuryDirect to determine your tax liability.

  • Series I: Series I bonds are inflation-indexed savings bonds. The U.S. government adjusts the amount of I bonds semiannually to keep up with inflation and protect the purchasing power of the bondholders.

    The current yield on I bonds is 4.66 percent. The first part of the rate is a 1.1 percent component that applies to the 30-year life of the bond. The second component is a variable rate that’s set annually and is currently at 3.5 percent. The variable component reflects the Consumer Price Index and the buying power of investors who own the bond. A noteworthy comparison: The current yield on T-bills is about half what it is for I bonds.