Okay, deep breath...here are the facts.
1. You can cash in a savings bond after holding it for 1 yr, based on the issue date (month and year). If you are clever about buying that bond at the end of the month, you effectively shave off most of the month.
2. If you cash in a savings bond between 1- 5 yrs, you will be docked three months of interest. This "penalty" is taken as you redeem it, so you will get slightly less for the bond than you'll think you get.
3. Savings bonds are federal tax deferred, and not subject to state or local tax. If you use them for educational purposes, you don't pay federal tax either. As long as you don't cash a savings bond in, you don't have to pay federal tax. In the year that you cash the bond, you pay tax only on the interest accrued - its considered income - at your tax rate.
4. Savings bonds mature at 30 yrs. This means that they stop earning interest, and it also means that you will be taxed on the interest the year they mature. If you have a ton of old bonds, you'll want to redeem them gradually over a period of years, to avoid having what's called a "tax bomb".
Here are a couple of good web sites to help you out:
http://www.publicdebt.treas.gov/bpd/bpdsitemap.htm
http://www.savings-bonds-alert.com/