Course 108: Introduction to Government Bonds
U.S. Savings Bonds
In this course
1 Introduction
2 The Basics of Government Securities
3 Treasury Bonds
4 Treasury Notes
5 Collateralized Mortgage Obligations
6 Agency Bonds and Mortgage-Backed Securities
7 U.S. Savings Bonds
8 You Can Invest in Your Government through Government Securities

U.S. Government securities can be divided into those that can be traded and those that cannot. The bonds that can be traded are called marketable: after they are bought, investors can sell them on the secondary market through exchanges or over the counter. The secondary market is very active, and bond prices fluctuate with the prevailing interest rates. There are also non-marketable government securities. Only the federal government can redeem these. They do not trade on secondary markets. These are the U.S. savings bonds.

Only the federal government can redeem U.S. savings bonds.

The three types of non-marketable bonds are called Series EE, Series HH, and Series I bonds.

Series EE Bonds
Series EE bonds are the savings bonds that have been popular for decades. They do not distribute interest periodically, as many other bonds do. They are purchased at a discount from the face value, also called "par." The discount is calculated using the bond's interest rate and years to maturity. Investors purchase them for less than their face value and let them build up to full face value at maturity.

The minimum face value of a Series EE bond is $50. The maximum face value possible is $30,000. One can purchase Series EE bonds at banks or through payroll deduction plans. The investor can allow the accrued interest to be taxed each year, or he or she can defer it until the bond is redeemed. Tax may even be deferred beyond this date if the investor exchanges his or her bond for a Series HH bond.

Series HH Bonds
Series HH bonds are savings bonds that do pay interest and are sold at their face values. Interest is paid twice per year. The denominations range from $500 to $10,000. Series HH bonds may be redeemed after six months. They normally mature in ten years but can be extended to twenty. Series HH bonds can only be obtained as exchanges of Series E or Series EE bonds. They come with fixed rates of interest. These are no longer available as of August 2004.

Series I Bonds
Series I bonds also are sold at their full face value, beginning with a minimum denomination of $50. Other denominations are $75, $100, $200, $500, $1,000, $5,000, and $10,000. Like Series EE bonds, you receive the interest earned when you cash the bonds; however, you must hold EE and I bonds at least six months (12 months if purchased in February 2003 or after). I bonds earn interest for 30 years.

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