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´╗┐Savings Bonds - The Basics

Saving bonds are basically debt securities which are issued by the U.S. Department of the Treasury in order to fund the U.S. government's borrowing needs.

Considered as one of the safest forms of investments in the US, savings bonds come in various types and categories and have a series of benefits associated with them.

Types of Saving Bonds

There are three main categories of savings bonds at the present. It is important to note that the categories of savings bonds might undergo changes over the due course of time.

The various categories include:

Series EE Bonds

Having replaced the earlier Series E bonds, these are purchased at a discount of half to their face value. As per the government regulations, in a given calendar year, you can only buy upto a face value of $5,000. These EE bonds increase in value in accordance with interest that accrues or accumulates. Such saving bonds pay an interest for 30 years and when the bonds mature, the buyer is paid the original investments, along with all the interest.

Series HH Bonds

The Series HH Bonds are those that can only be purchased in exchange for the Series EE or E binds and Savings Notes, or, alternatively, with the proceeds form a matured Series HH bond.

These savings bonds are purchased at their face amount, in $500 to $10,000 denominations, but carry no upper limit on the amount that can be purchased. In addition, they do not increase in value and have a maturity period of 20 years.

Series I Bonds

The savings bonds of this category are sold at face value and grow with inflation-indexed earnings for a period of up to 30 years. Bonds worth the amount of $5,000 can be bought in a particular calendar year.

Tax and Other Benefits

To begin with, savings bonds are regarded as the safest form of investment in US, being backed by the full faith and credit of the U.S. government.

The other numerous benefits of opting for savings bonds include:

- Federal taxes on the interest amount can be deferred until the buyer cashes in the bond or stops paying the interest at maturity.

- Saving bonds are exempt from the state and local taxes, helping you to save further

- Being registered with the U.S. Treasury's Bureau of Public Debt, these bonds can be replaced if the bond is lost, stolen or destroyed.

Considered as one of the safest and most lucrative form of investments in the U.S., these savings bonds find a large number of takers every year, especially amongst those looking at enjoying the tax benefits involved.