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Savings-Bonds-Alert: Series HH - Final call

Friday, August 27, 2004

Series HH - Final call

I was reading about the Series EE Savings Bonds and the Series HH bonds. They said that the HH bonds are tax sheltered on their interest and that if you want to change the EE bonds to HH bonds then the deadline is August 31, 2004 and the EE bonds are not tax sheltered - Is that true? Tom's response It's true that HH bonds won't be offered after the end of this month. However, they are a bad deal for almost everyone. All Savings Bonds, no matter what the series, offer the same "tax shelter." The shelter is that you can defer the income tax on the interest you've earned until you redeem the bond. However, HH bonds earn a much lower rate (1.5%) than EE bonds (varies by issue date, in general runs from 2.5% to 4%). Because of the lower interest rate, the only case in which it makes sense to convert to HH bonds is if:
  • your E/EE bonds will mature within three years AND
  • you expect your tax rate to go down between now and then
There is a lot of misinformation in the papers about this right now. Consequently, many many people are making the mistake of converting to HH for a tax shelter they already have with EE bonds. In the end, they'll have less money because of the very low HH interest rate. For a complete analysis, see our Investment analysis of 1.5% Series HH Savings Bonds.


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