The U.S. Department of the Treasury began issuing Series HH savings bonds in 1980 and discontinued their sale after Aug. 31, 2004. Series HH bonds were not sold directly to the public. Investors could acquire them only by exchanging EE/E savings bonds or reinvesting mature H bonds. Interest payments work differently for HH bonds compared to other savings bond types. This affects the value of the bonds and how interest is calculated.
How HH Bonds Work
The Treasury Department issued HH bonds only as paper bonds in four denominations: $500, $1,000, $5,000 and $10,000. TreasuryDirect.gov explains that HH bonds do not accrue interest, meaning interest earned is not added to the value of the bond. Instead, interest is paid out every six months and sent directly to the bond owner's bank account. HH bonds mature in 20 years. For the first 10 years, they pay a fixed rate. At the 10 year mark, all HH bonds pay a current interest rate. HH bonds stop earning interest after 20 years.
The Value of HH Bonds
Investors bought HH bonds at face value. This means you paid $1,000 for a bond with a face value of $1,000. Since interest is not added to the bond, the value does not change. At maturity, the bond will have the same dollar value it had when it was issued.
Calculating HH Bond Interest
HH bonds issued prior to January 1, 2003 had an original fixed interest rate of 4 percent per year. This rate was good until the bond was 10 years old. After that time, the interest rate changed to the current rate established by the Treasury Department. At the beginning of 2003, the current rate changed to 1.5 percent. As of 2015, the rate remained 1.5 percent. Since all of the HH bonds issued before 2003 are more than 10 years old, they all pay this current rate. To calculate a 6-month interest payment, divide the interest rate in half and multiply by the face value of the bond. For example, 50 percent of 1.5 percent is 0.75 percent. For a $1,000 HH bond, the calculation would be 1,000 x .0075, which equals $7.50. Double this amount and you see that the bond pays a total of $15 annually.