3rd Nov 2009 by Daniel Cross, ChFC
There are two types of savings bonds that the US government issues now: the EE, and I. The EE series savings bond is the traditional form most people think of. They are purchased at 50% of their full face value and held until their maturity date in which they are then redeemed. The interest rate would be determined by simply dividing by the amount of time left to maturity. The I series savings bonds work differently in the fact that they are inflation adjusted and therefore changes the real interest rate earned on the I series bond.
In both cases, savings bonds interest rates are below those found on other short-term debt instruments. Also, like any other kind of bond, an early redemption will result in an overall yield reduction. The main benefit of savings bonds are the avoidance of state and local income taxation on interest gained, and in the EE's case, deferral of federal income taxation until maturity.
Like This Answer?
This answer is the subjective opinion of the writer and not of FinancialAdvisory.com