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URL:  http://boards.fool.com/hi-ram11-you-may-get-more-responses-in-the-15434411.aspx

Subject:  Re: Purchase of Bond Date:  7/24/2001  3:33 PM
Author:  jrr7 Number:  121 of 294

Hi, RAM11!

You may get more responses in the "Bonds" board:
http://boards.fool.com/Messages.asp?bid=100135

For Retirement questions, ask on the "Retirement Investing" board:
http://boards.fool.com/Messages.asp?bid=100154

A US Savings Bond pays interest according to a set formula. The formula is always the same but some of the parameters in the formula may differ. For Series E/EE bonds, the interest rate is based on the rates on Treasury securities; for series I bonds the interest rate is based on the inflation rate. [Series H/HH bonds are different beasts in that they throw off income regularly and have a completely fixed rate.]

However, to cover the cost of accepting the money, issuing the bond, etc. the government charges a 3 month interest penalty. For instance if you cash it in after 1 year, you only get 9 months worth of interest. If you cash it in after 4 years and 3 months, you only get 4 years worth of interest.

Once you get to 5 years the penalty disappears.

There are some credit card tricks you can use to counteract the 3 month penalty.
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