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chase a Series EE bond with a face value of $5000; your cost is $2500). Any single investor can purchase up to $15,000 in face value of EE bonds in a single calendar year. The other limitation on EE bonds is a maximum purchase of up to $15,000 par value each for bonds that are registered in co-ownership form. Series EE bonds do not pay current interest the way Treasury notes and bonds do; rather, they are issued at a discount and then pay face value upon maturity.

EE bonds do earn an interest rate that is 90 percent of the average return on marketable Treasury securities, which is called a market- based rate. This is set by the Treasury every six months. EE bonds may be redeemed at any time, provided the owner has held them for more than six months. Redemption within the first five years of the bond’s life, though, will decrease the effective yield on the bond.

Upon redemption of EE bonds, the investor is taxed on the dif- ference between the purchase price of the bond and the redemption price, but the interest on EE bonds may be tax-exempt in certain cases. If the principal from the bond is to be used for education, whether it is for your child, grandchild, or yourself, the interest is tax- free, provided your income meets certain limits. Any interest earned on a savings bond is also exempt from state and local income taxes.

Series EE bonds can be exchanged for Series HH bonds at par value. Like the EE bonds, the denominations for HH bonds range from $50 to $10,000. Unlike the EEs, HH bonds pay interest semi- annually. They can also be redeemed at any time, as long as they have been held for at least six months. However, they can be held for up to 20 years to accrue interest. By exchanging EE bonds for HH bonds, an investor can be privy to a long period of tax deferral. As long as the EE bonds are exchanged for HH bonds not more than one year after the EE bonds mature, the tax due on all the interest earned on the EE bonds is deferred until the HH bonds are redeemed.

U.S. Government Agency Securities While these types of securities are not issued directly from the U.S. government, they do carry some federal guarantees. Some of the agencies that issue these securities are the Federal National Mort- gage Association (commonly referred to as Fannie Mae), the Gov- ernment National Mortgage Association (Ginnie Mae), Federal Farm

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