The interest rate is set when you buy the bonds and is adjusted on the 10th anniversary of the issue date. That allows you to continue to defer much of the income tax until you cash in the HH bonds or they reach their maturity date. Finally, there's a series of savings bonds that are adjustable for inflation. Series I bonds accrue interest. They're purchased at face value.
Holders receive interest in two parts.
You get a fixed return that is set at the time the bond is purchased. Then there's a variable return that's adjusted twice a year for inflation. Taxes on Series I bonds are delayed until you redeem the bond or begin to collect your interest. The income is exempt from state and local income taxes. Now, to answer Trish's first question.