What Are US Government Bonds?
There are a number of different types of government bonds: Treasury bonds, EE savings bonds, I savings bonds and HH savings bonds. Bonds can be purchased through through a broker or directly from the government. Government bonds are extremely reliable, but also almost always have lower yields than other bonds or investments. Another advantage is that interest payments from the bonds are exempt from local and state taxes.
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Treasury Bonds
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The government issues treasury bonds in terms of 30 years and pays a fixed rate of interest every six months until they mature. You can use Treasury bonds to diversify your investment portfolio, finance education and supplement retirement income. The minimum value of Treasury bonds you can buy is $100. When a bond matures, the government pays you the face value of the bond. You can hold bonds until maturity or sold before maturity.
EE Savings Bonds
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Series EE savings bonds pay interest based on current market rates for up to 30 years, for bonds purchased May 1997 through April 30, 2005. Series EE Bonds issue dated May 2005 and after will earn a fixed rate of interest; they are an accrual-type security, which means interest is added to the bond monthly and paid when you cash in the bond. Not only can EE Bonds finance education and supplement retirement income, but they can also be given as gifts. The minimum purchase is $25 for a $50 EE Bond, for paper bond certificates. The minimum term of ownership for an EE Bond is one year, and the interest earning period is 30 years. An advantage of an EE Bond is that interest earnings may be excluded from Federal income tax when you use the bond to finance education.
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I Saving Bonds
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I Bonds provide liquid savings with low risk. The bonds earn interest while protecting you from inflation. According to TreasuryDirect.gov, "I Bonds have an annual interest rate that reflects the combined effects of a fixed rate and a semiannual inflation rate." Rarely, interest is added to the bond monthly and is paid when you cash the bond. I Bonds are sold at face value and have a minimum term of ownership of one year. Just like EE Bonds, I Saving Bonds' interest earnings may be excluded from Federal income tax when used to finance education.
HH Bonds
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As of September 1, 2004 HH Bonds became unavailable. Unlike EE Bonds, HH Bonds are current income securities. The bonds were paid for at face value, and interest payments are received by direct deposit to your checking or savings account every 6 months until maturity or redemption. You can use HH Bonds to supplement retirement income, and the current interest rate is 1.5 percent. HH Bonds were available only in exchange for EE Bonds or upon reinvestment of matured Series H bonds. HH Bonds pay a fixed interest rate set on the day the bond was purchased. The interest rate changes to the current HH Bond rate on the tenth anniversary of the issue date. Interest earnings are exempt from state and local income taxes but are subject to federal, state and local estate, inheritance, gift and other excise taxes.
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