Series HH Savings Bonds
Understanding the Role Series HH Savings Bonds Play in a Portfolio
The Series HH savings bond program was originally designed to reward patient, long-term investors who had held Series EE savings bonds to maturity; a way to encourage them to keep lending money to the taxpayer while enjoying passive income in the form of interest.
Unlike the Series EE savings bonds, which did not pay out interest to investors in the form of cash but instead added the interest income back to the principal value of the bond (only enriching the owner when the bond was cashed), the Series HH bonds never increased in value.
The interest income on the Series HH bonds was deposited into the bond owner's bank account every six months, providing a steady source of investment income that could be spent while the bond was still held. Backed by the full faith and credit of the United States Government, these bonds were the perfect way for risk-adverse investors to live off their money.
With Series EE savings bonds, you don't have to pay taxes on the interest income that is added to your bonds each year. Instead, you can wait until the final maturity and pay all of the tax at once, when you cash the bond. By exchanging the Series EE savings bonds for Series HH savings bonds, you could defer all of those taxes for up to an additional twenty years! This was an enormous benefit, giving investors far more money to work for them. It was a perfect example of a program that rewarded good behavior that benefited the nation.
The Interest Rate on Series HH Savings Bonds
The interest rate for the Series HH savings bonds was set every six months and fixed on the day you purchased your bond. The rate was locked in for ten years. Interest rates reset on the tenth anniversary of the Series HH bond's issue date. Series HH savings bonds reach maturity and stop earning interest income altogether on the twentieth anniversary of the issue date.
Interest income received from Series HH savings bonds must be reported in the tax year it is received, but it is not subject to state and local taxes.
Like the Series I savings bonds, Series HH savings bonds can be redeemed for full face value at any time.
The End of the Series HH Savings Bond Program
On September 1st, 2004, the United States Treasury Department stopped offering Series HH savings bonds to investors, ending a successful and well regarded program that rewarded saving, thrift, and investment. The program has not been replaced with anything comparable, leaving investors to look to the private market to find good bond investments.
There are still many Series HH savings bonds outstanding but investors who are lucky enough to own them will find themselves without a comparable alternative unless Congress acts by the time the last ones mature in the year 2024.