Series HH Bonds: Structure, Historical Insights, and Tax Implications
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Summary:
Exploring the intricacies of Series HH bonds, a now-discontinued 20-year non-marketable savings bond issued by the U.S. government. This guide delves into its structure, historical context, tax implications, and a comparative analysis with Series EE bonds, offering financial professionals a nuanced understanding of this bygone investment tool.
What is a series HH bond?
The Series HH bond, a non-marketable savings bond, was a financial instrument issued by the U.S. government. With a 20-year lifespan, it paid semi-annual interest based on a coupon rate. The coupon rate was fixed for the first ten years, after which the U.S. Treasury adjusted it for the remainder of the bond’s duration.
Sold at face value, Series HH bonds came in denominations of $500, $1,000, $5,000, and $10,000. Despite being discontinued on Aug. 31, 2004, those that haven’t matured continue to accrue interest.
Understanding series HH bonds
The Series HH Savings Bond Program, introduced in Nov. 1982, catered to long-term investors. These bonds were exclusively obtainable through the exchange of Series EE/E bonds or the reinvestment of matured Series H bonds.
Primarily adopted by individuals seeking to supplement their retirement income, Series HH bonds were sold at face value in various denominations. Investors received paper certificates, and interest payments were deposited directly into their accounts every six months. The bond allowed for early redemption and exchange options after six months.
Following the initial ten years with a fixed interest rate, the coupon rate could drop as low as 1.5%, prompting investors to assess whether retaining the bonds or transitioning to higher-yielding securities was the prudent choice.
Taxation
Interest on Series HH bonds enjoyed exemption from state and local income taxes. However, investors were obligated to report earnings on federal returns, necessitating the filing of IRS form 1099-INT to declare interest income.
Series HH bonds vs. series EE bonds
While sharing some similarities with Series EE savings bonds, Series HH bonds exhibited key distinctions. Unlike Series EE bonds, where interest is added to the principal, Series HH bonds paid interest every six months, ensuring a consistent income stream. Notably, the principal value remained constant.
Considered a secure investment due to the full faith and credit of the U.S. government, Series HH bonds appealed to risk-averse investors seeking regular income.
Frequently asked questions
Can I still purchase series HH bonds?
No, Series HH bonds were discontinued by the U.S. government on Aug. 31, 2004, and are no longer available for purchase.
How often were interest payments made on series HH bonds?
Interest payments were made every six months via direct deposit into the bondholder’s account.
What denominations were series HH bonds available in?
Series HH bonds were sold at face value in denominations of $500, $1,000, $5,000, and $10,000.
How does Series HH bond taxation differ from Series EE bonds?
While Series HH bond interest is exempt from state and local taxes, investors need to report earnings on federal returns. This distinguishes it from Series EE bonds, where interest is added to the principal.
Can I redeem series HH bonds before maturity?
Yes, Series HH bonds allowed for early redemption after six months, providing flexibility for bondholders in managing their investments.
Key takeaways
- The Series HH bond, a 20-year non-marketable savings bond, paid semi-annual interest.
- Coupon rates were fixed for the first ten years and then reset by the U.S. Treasury.
- Sold at face value, denominations included $500, $1,000, $5,000, and $10,000.
- Discontinued in 2004, Series HH bonds still pay interest for unmatured ones.
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