How is Savings Bond interest taxed?

Monday, September 20th, 2004
Categorized as: Savings Bond taxes

Is interest on Savings Bonds taxed at dividend rates or ordinary income rates? Do you pay state tax on US government bonds?

Tom’s response

Savings Bonds pay interest income that is taxed at ordinary tax rates.

States aren’t allowed to collect income tax on Federal interest payments, including Savings Bond interest, but you need to make sure you take the deduction on your state taxes. It’s not automatic.

My book has detailed information on how to complete your state tax return so that you get the deduction.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

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June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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