<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by nologic:
[B I understand these rates are exempt from state taxes and accumulate exem[pt from Federal taxes (although taxable upon withdrawal), so the effective after tax yield is somewhat higher than the stated rate.[/B]</font>
Both I and EE bonds (all Treasury securities, in fact) are exempt from state and LOCAL taxes. And, in the case of I and EE bonds, you actually have a choice to report and pay federal taxes on the interest on an annual basis OR defer the tax until the bonds are cashed. What's more, you can switch from doing it one way to doing it the other way, subject to some limitations I'll explain if anyone's interested.