Margarita M. Phillips 
Unlike a traditional bond, which regularly pays the investor cash interest, a savings bond does not actually pay accrued interest until the bond is repaid. After purchasing a US savings bond, a person must wait at least 12 months before redeeming the bond to receive face value and accrued interest.
There is, however, a penalty for redeeming a savings bond within the first five years after purchase. The penalty is the forfeiture of the last three months of interest.
Is interest subject to income tax?
Unlike many other forms of investing, there is good news for buyers of US Savings Bonds. They do not pay state or local income tax on interest earned on savings bonds. Interest is subject to federal income tax, but only in the year in which the bond is repaid or when it matures and ceases to earn interest.
Even federal income tax on interest on savings bonds can be avoided if the money is used to pay for higher education. This tax exemption will depend on your annual income. Unlike an IRA or 401 (k), there is no age limit on when a savings bond can be cashed out.
What happens when a bondholder dies?
A person who buys US Savings Bonds can cash them in, but cannot transfer the bonds to another person. At the time of purchase, a US Savings Bond may be registered in the name of a single owner, two people as co-owners, or a primary owner with a designation “payable on death” to a beneficiary.
