Series 6

Investment Securities - Agency Issues and U.S. Savings Bonds

Agency securities include debt instruments issued both by federal agencies and by government-sponsored enterprises, or GSEs. Although government-sponsored enterprise securities are not direct obligations of the U.S. government, their credit risk is still considered low, as the federal government created the entities and will not let them default on their obligations.

Both federal agency and GSE securities are subject to federal taxation. However, some agencies are exempt from state and local taxes, including the Federal Home Loan Banks, Federal Farm Credit Banks and the Student Loan Marketing Association, or Sallie Mae.


  • Federal Agencies: Federal agencies are direct arms of the U.S. government. The securities that they issue are backed by the full faith and credit of the United States. Examples of federal agencies include the U.S. Postal Service (USPS), the Small Business Administration (SBA) and the Government National Mortgage Association (GNMA), or Ginnie Mae. Most federal agencies no longer issue securities directly to the public, with the exception of Ginnie Mae.
  • Government-Sponsored Enterprises: Government-sponsored enterprises (GSEs) are publicly-chartered, but privately-owned, corporations. They were created by Congress to provide low-cost loans for certain segments of the population (e.g. farmers, students, homeowners, etc.). They issue a wide variety of securities including discount notes with maturities of up to 360 days, or bonds with maturities of 1-30 years. Examples of GSEs include the Federal Farm Credit System, Federal Home Loan Banks (FHLB), Freddie Mac (Federal Home Loan Mortgage Corporation, or FHLMC), Fannie Mae (Federal National Mortgage Association, or FNMA), and Sallie Mae (Student Loan Marketing Association, or SLMA).
Exam Tips and Tricks
Federal taxes are levied on all federal agency and GSE
securities. Debt securities issued by the U.S. government are federally taxed, with certain exceptions, but in many cases they are issued tax-free at the state and local levels.

U.S. Savings Bonds
The main types of non-marketable government bonds are Series EE, HH, and I savings bonds.


  • Series EE Bonds: Series EE Bonds are 30-year investments issued in denominations ranging from $50 to $10,000. They are purchased for half (50%) of their face value at financial institutions that are qualified as savings bond agents. (For investors who have purchased Series EE bonds since May 1, 1997, and have held the bonds for at least five years, the interest rate is equivalent to 90% of the average yield on five-year Treasury bonds based on the previous six months.) The rate is reset twice a year - on May 1 and November 1 - and is therefore variable.
  • Series HH Bonds: Series HH Bonds are 20-year investments that pay semiannual interest and have face values ranging from $500 to $10,000. The only way to acquire HH bonds is to exchange at least $500 in EE bonds. The interest on both Series EE and HH bonds is federally taxable but free of state and local taxes. Taxes on the interest of Series EE bonds can be deferred until the bond matures or is cashed in.
  • Series I Bonds: The U.S. government began issuing Series I bonds in September 1998. These bonds are indexed for inflation and are available in the same denominations as EE bonds. Unlike EE bonds, they are sold at face value, and their interest rate is reset semiannually based on the rate of inflation. Interest on I-bonds is paid over 30 years and is reinvested back into the principal of the bond as long as the bond is held. Series I bonds are free from state and local taxation. Moreover, federal taxes are deferred until the bonds are redeemed or mature. I bonds are partially or wholly tax-exempt if used for higher education, making them good candidates for college savings.


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