U.S. savings bonds are among the most widely held securities in the world. Chances are you've probably got a few stashed away in a safe deposit box somewhere that your aunt or uncle gave you for your twelfth birthday. All savings bonds are not created equal. For instance, there are significant differences between Series E and Series H bonds.
Both Series E and Series H bonds trace their histories back to 1935 when President Franklin D. Roosevelt authorized the issuance of so-called baby bonds. The U.S. Treasury Department sold approximately $4 billion worth of Series A, B, C and D bonds between 1935 and 1941. The first Series E bonds were issued in early 1941 as Defense Bonds. Once the U.S. entered World War II the bonds became known as War Bonds. Series H bonds were first issued in June 1952.
Series E Bonds
Series E bonds were issued at a discount from their face value and were redeemable at face value upon maturity, 10 years later. Subsequent legislation allowed bondholders to continue receiving interest on their Series E bonds for between 30 and 40 years, depending on the issue date. Series EE bonds replaced Series E bonds in 1980. The last Series E bond ceased to earn interest in 2010, according to the U.S. Treasury Department's TreasuryDirect website. You can no longer purchase Series E bonds.
Series H Bonds
Series H bonds were introduced in 1952 as a current interest alternative to Series E bonds. Investors bought Series H bonds at face value. These bonds paid a fixed rate of interest — three percent in 1952 — every six months, with interest payments mailed to the bondholder. Bondholders could redeem their Series H bonds for their full face value after holding them for six months. The last Series H bond ceased earning interest in 2009. You can no longer purchase Series H bonds.
Interest earned on both Series E and Series H bonds was free from state income taxation, but was fully taxable on the bondholder's federal income tax return. The interest on Series E bonds accumulated tax-deferred until the bond was cashed in. The interest on Series H bonds was considered taxable in the year it was paid to the bondholder.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.