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A Savings bonds are also issued by the U.S.
treasury. They differ from other Treasury securities in several ways.
Savings bonds are non-marketable, meaning that they cannot be traded after
they are purchased from the government; therefore, there is no secondary
market for savings bonds. The tax benefits associated with savings bonds are
significant.
Like all treasury securities, they are exempt
from state and local taxes, but in the specific case of savings bonds, all
federal taxes may be deferred until the bond is redeemed. Therefore, even
though interest will accrue, no taxes will be due until that money can be
accessed. Additionally, if the money received at redemption is used to pay
tuition expenses for the holder, a spouse or a dependent in the same year,
the interest earned may be exempt from federal taxes as well. Because
savings bonds can be redeemed at any time without penalty once they have
been held for six months, they are extremely liquid even without a secondary
market.
Savings bonds are very easy to purchase with a
Treasury Direct account (described earlier). Money can also be regularly
deducted from paychecks and placed in savings bonds, or, with the "Easy
Saver" program, money can be automatically deducted from a bank account at
regular intervals. The bonds can also be purchased at banks or at the
website of the Bureau of Public Debt. Interest rates earned on savings bonds
are adjusted in relation to the market every six months.
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