A Savings Bond issued at a discount from par par with a fixed rate of interest, set at the time of purchase. All interest on the bonds is calculated semi-annually, but paid at maturity and exempt from state and local taxes. The federal tax incurred on the interest can be paid annually or deferred. Over the first six months to five years that such a bond is held, it earns interest at 85% of the average yield on six-month Treasury Bills. After five years, it earns 85% of the average yield on five-year Treasury notes. There is no secondary market for such bonds, but they can be redeemed before maturity. At maturity, the bond will automatically enter extended maturity and earn interest according to rates at the beginning of that period. EE bonds will continue to earn interest for 30 years after they are purchased. Once they have reached maturity, EE bonds may be exchanged for Series HH bonds in order to continue to earn interest and further defer federal taxes. An individual can purchase up to $30,000 face value in savings bonds in one year.
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