What is a Series HH Bond
The Series HH bond is a 20-year, non-marketable, savings bond issued by the U.S. government. The Series HH bond pays semi-annual interest based on a coupon rate. This coupon is locked in at a fixed rate for the first ten years, after which the U.S. Treasury resets it for the rest of the bond's life.
Series HH bonds were no longer available for purchase or exchange as of August 31, 2004.
BREAKING DOWN Series HH Bond
The series HH savings bond program was designed with terms that appealed to the long-term investor. During the period when they were available, Series HH bonds were available in denominations ranging from $500 to $10,000 with no capital appreciation potential, but with early redemption and exchange options after six months. Starting in November 1982, Series HH bonds were only available in exchange for Series EE/E bonds or upon reinvestment of matured Series H bonds.
Series HH savings bonds were similar to Series EE savings bonds in some ways. However, any interest earned on Series EE savings bonds is returned to the principal value of the EE bond. That meant that the bondholder would only benefit from the investment gains at bond cashing. In contrast, the Series HH bond paid interest income to bondholders every six months until maturity or redemption, while the principal value of the bond never went up. Payments were made automatically via direct deposit to the bond owner’s account every six months. For this reason, Series HH bonds appealed to risk-averse investors seeking regular income from their investments. Because the Series HH bonds have the baking and full faith and credit of the U.S. government, they were considered a safe investment.
Tax and Investment Implication of Series HH Bonds
Interest on Series HH bonds is exempt from state and local, but not federal, income taxes. Bondholders must file IRS form 1099-INT to report their interest income on their federal tax return.
Series HH bonds paid a fixed interest rate that was set on the day of purchase and locked in for the next ten years. Once the 10-year locked in rate expired, the coupon rate would fall as low as 1.5% for many Series HH bondholders. Investors should calculate the real return being earned to determine whether holding onto these bonds is the wisest choice, or if the money received in redeeming them could be better utilized in higher yield securities.