By: Michael E. Martinez

There are many different types of savings bonds. One of the safest low risk forms of investing is in U.S. government bonds. Buying savings bonds can provide a solid base in your portfolio; it has tax advantages as well. More than 55 million Americans hold nearly $200 billion in U.S. savings bonds. Savings bonds are safest as any investments you can find. They can be purchased directly from the treasury department by purchasing bonds directly; you do not have to pay a broker fee. You can obtain EE, HH, or I bonds. H bonds are still in circulations which were issued up to 1979, people still have these in their possession.

When you buy bonds, you hold on to them and you receive semi-annual interest but you should be aware of the length of time until the bond meets the original maturity and the final maturity. Original maturity is the amount of time it takes for the bond to reach face value at the guaranteed interest rate. Extended maturity is the period after your bond meets original maturity; this is a ten year period. Final maturity, at this point the bond will no longer earn interest.

You should redeem them or roll over into HH bonds at that point. I bonds are called an accrual bond. It means the interest is always added to the value of the bond. It's not paid out to the bond owner but added to the bond. These bonds are purchased at face value and have a span of 30 years at which point they will no longer pay interest. There are two parts to the interest rate; the first part is a fixed rate which is assigned when you buy it and stays with it for the life of the bond. The second part is an inflation adjusted portion which goes up or down every six months. It's added to the fixed rate every six months, it's the part of the bond that's tied to inflation. You can buy an I bond for $50 or all the way up to $10,000. You can purchase up to $30,000 in I bonds, which is twice as much as you can purchase in EE bonds.

You can hold on to an I bond for at least six months before redeeming it. However, if you cash it before five years, you will loose three months of interest. The EE bond is tied to the five year treasury yield. The I bond is tied to inflation so you have to decide whether you think the five year treasury yield is going to outperform inflation and the fixed rate. You can't buy an HH bond for cash; it is a rollover from EE bonds. The HH bond pays a ten year rate on a twenty year bond. You might choose this bond if you have an EE bond with a lot of interest that has grown. Rather than paying a lot of taxes on interest income, you can rollover your bond to the HH; it allows you defer interest until you cash the HH bond in, so you would get twenty years of deferred interest.

The I bond can not be exchanged for an HH bond, only for cash. Savings bonds act independently to the stock market, so if the market is dropping and a great deal of volatility, you can move to savings bonds, once you buy it, you are the owner. To decide on which bonds pay interest or how it pays interest, for the HH bonds, the bond will stop paying interest in twenty years, the EE and I bonds stops paying interest in thirty years. For people who are still holding the old E bonds, it's either thirty or forty years depending on when it was issued.

I myself have several EE bonds which have not reached maturity as of yet, when they do I will have to decide whether to cash these in or roll them over into HH bonds for a long term investment. At this point, I think EE bonds are the best way for me to go. Some people are still hanging onto bonds that are this point collecting no more interest; there are more than $3 million worth of bonds that some people for whatever reason are still hanging onto. Some believe if you hang onto a bond forever it will earn interest, I believe a lot of people are not totally educated about bonds, they receive them for birthdays, anniversaries and wedding gifts, put them away and forget about them.

There are many websites online that you can find out exactly what your bonds are worth and when they mature, then you can make your decision whether to hang on to them, roll them over or cash them in. At that point, you will have to pay taxes. However, while you're collecting interest, you aren't required to pay taxes as it accumulates; even some are exempt from state and local tax.

Savings bonds are considered registered securities, and that only the people named on the bond can negotiate the bonds. This means if you loose a bond, you can file a claim form and the government will research it free of charge and replace the bond certificate free of charge as well.