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Whether you are saving for a new home, car, vacation, education, retirement, or for a rainy day, U.S. Savings Bonds can help you reach your goals with safety, market-based yields, and tax benefits. The money invested in savings bonds directly helps finance our country's borrowing needs. The interest earned on savings bonds is exempt from all state and local income taxes. Federal income taxes on the interest are deferred until the bonds reach final maturity, or you redeem them, whichever is first.
Reasons to Consider U.S. Savings Bonds:
1. Safe and secure - backed by the U.S. Treasury Department.2. Interest earnings are federal tax-exempt if used for college tuition.
3. Interest earnings are always state and local tax-exempt.
4. Guaranteed returns over and above inflation rate for up to 30 years.
5. Liquid investment - can be cashed after one year at your bank.
6. You pick the deduction level.
7. You can buy bonds for your children and grandchildren too.
8. You can't lose your money!
Calculate US Savings Bond Values
A savings bond is a treasury security for investors. In essence, investors are loaning the government money. They are issued both as paper bonds and electronic savings bonds. They cannot be traded but can be redeemed after only one year. There are no dividends, per se, with a savings bond, as the interest payments are simply added on to the value of the bond, but as tax-deferred items, the interest doesn't have to be reported to the government until the bonds are cashed.
The value of a savings bond varies with the kind of bond purchased - series A, B, C, D, E, EE, F, G, H, HH, I, J and K. It also depends on when it is cashed and what kind of interest it has been assigned. Since 1935, the treasury has issued savings bonds in alphabetical progression. For example, series A bonds were offered the first year, Series B bonds followed in 1936, Series C ran from 1937-1938, and Series D were issued from 1939-1941. Series E bonds, longest running of the treasury savings bonds, ran from May 1941 until they were discontinued in 1980.
Series EE bonds were brought out in 1980 to replace the series E. They can be purchased at half or full face value. They come in amounts between $50-$10,000, and carry a maturity date of between eight to thirty years. Those cashed in before the fifth year are penalized three months' worth of interest. If EE bonds are purchased through a bank or other financial institution, it is also known as a Patriot Bond. There were more kinds of savings bonds, including the series F and G (which were offered to all investors except banks), series H, HH, Series I, J and K.
How do we calculate the value?
The value of a savings bond can be calculated by taking note of the face value of the bond, the interest rate from the time the bond was issued until the present time, and whether there are any penalties that have to be deducted. In addition, it is important to note that a bond that is issued at half the face value will be worth the face value at maturity, while a bond that is issued at face value is worth twice this amount at the time of maturity. Savings Bonds can also increase in value if they are redeemed past their maturity date, in which case the interest must be calculated on a year-to-year basis.
How to Purchase I Bonds
You can purchase Series I Bonds at face value – you’ll get a $50 I Bond for $50. In a single calendar year, you can buy a maximum of $5,000 in bonds. For paper savings bonds, you’ll receive your purchase in the fewest possible denominations of $50, $75, $100, $200, $500, $1,000, or $5,000. Electronic bonds can be bought to penny for $25 or more (e.g. $46.77 or $88.02).I Bonds can be bought by visiting TreasuryDirect at http://www.treasurydirect.gov (the only accounts that hold electronic I Bonds), ordering paper savings bonds through TreasuryDirect, ordering through a financial institution, or setting up a payroll savings plan. Recently, the IRS also allows taxpayers to purchase Series I Bonds with your tax refund.
TreasuryDirect.gov – Buy Savings Bonds Online
The Treasury Department has a nice website for buying savings bonds. The process is easy and fast. If you’re internet-savvy, you can be the proud owner of a savings bond in less than 10 minutes. If you’re still figuring things out online, it may take 20 minutes.Honestly, I was amazed at how easy the site is – in fact I’m a little concerned about it.
First you’ll create an account which they verify via email. You just type in some basic personal information. You also link a bank account to your TreasuryDirect account (no verification required). It seemed like they aren’t taking security as seriously as many of the online banks when you set up a link. Of course, it is the government so presumably they have the power to fix any mistakes.
Once you’re logged-in, you can buy a variety of Treasury securities. There is even a “Purchase Express” form on the welcome page. You can simply enter a bond-type and dollar amount and you’re off.
In my humble opinion, the Treasury should do a better job of verifying orders to purchase these securities. You have to do a lot of digging to find the fine print that details minimum holding periods and cash-out penalties. Be sure you understand what you’re getting into before you do anything on that site.
5 common questions about savings bonds
1. Why should I buy U.S. savings bonds?
Buying U.S. savings bonds is patriotic; when you lend money to Uncle Sam, you're helping to finance the country's borrowing needs. It's good for America, and it's good for Americans, too. Here's why:U.S. savings bonds are very safe:They are backed by the full faith and credit of the U.S. government. When you spend $500 to buy a bond, it will never be worth less than $500.
Interest rates are competitive: Series I and Series EE offer competitive rates. Check the Bureau of the Public Debt Web page for current rates. For comparisons, visit Bankrate.com for up-to-the-minute rates on money market accounts and CDs. Series EE and Series I rates change twice a year, in May and November.
There are tax breaks: You won't pay state or local income tax on the interest your bonds earn. For federal tax purposes, interest compounds tax-deferred until the bonds are redeemed.
If you use the bonds to pay for college, the interest could be tax-exempt: Check Bankrate.com's tip on the tax advantage of using savings bonds to pay higher-education expenses.
Series EE and Series I savings bonds are easy to buy: Employers offer them through payroll savings plans, and most banks and credit unions sell them. The U.S. Department of the Treasury lets you buy them directly through their TreasuryDirect Web site. When you open an account through TreasuryDirect, you can authorize automatic deductions from your checking or savings account and, soon, you'll be able to set up electronic payroll savings.
2. What types of U.S. savings bonds can I buy?
There are two series of U.S. savings bonds you can buy (Series I and EE). You may have heard about Series E and Series HH/H bonds; the E bonds were superseded by the Series EE and the HH/H bonds are no longer available.Series I: Introduced in 1998 to encourage Americans to save, this bond pays an attractive interest rate, and is indexed for inflation, based on the Consumer Price Index for all urban consumers (CPI-U). This is the Diva's favorite savings bond; read more about why in " Shopping for I bonds." Interest compounds, tax-deferred, until the bond is redeemed.
Series EE: This bond is a fixed-rate bond with the new rate based on the 10-year Treasury average for the preceding month with adjustments for features such as tax deferral.. Series EE bonds usually pay a lower interest rate than I bonds, but like I bonds, interest compounds, tax-deferred, until the bond is redeemed.
Series HH: This bond provides current income; interest payments are made by direct deposit to the bondholder's checking or savings account every six months. You couldn't buy Series HH bonds; you could only get them in exchange for Series EE/E bonds and savings notes or by reinvesting the proceeds of matured Series H bonds. Interest rates are reset on the 10th anniversary of the HH bond's issue date. But, the last issue month for the Series HH/H savings bonds was September 1, 2004.
For a comparison of I-bonds and EE bonds, see the U.S. Treasury's Web page " What's the difference between I Bonds and EE Bonds?"
For more on the Series HH bonds, visit the U.S. Treasury's HH/H Bonds Web page.
3. How much can I buy or exchange?
Series I:Bonds are issued at face value; $100 buys a $100 Series I bond. Annual purchase limit per Social Security number is $30,000.Series EE: Bonds are issued at 50 percent of face value; $50 buys a $100 Series EE bond. Annual purchase limit per person is $15,000 issue price ($30,000 face value).
4. How can my employer set up a savings plan for employees to purchase U.S. savings bonds out of payroll deductions?
The U.S. Treasury Bureau has designated four Federal Reserve banks to serve as "Savings Bond Processing Sites." They help employers set up payroll savings plans for U.S. savings bonds. The Bureau of Public Debt Web site has a map showing the four districts and the states they serve. It also provides a phone number and e-mail address for each district.5. How do I cash in my U.S. savings bonds?
Most full-service banks and credit unions will cash your Series EE and Series I savings bonds. They can't cash Series HH bonds, but can forward them to a Federal Reserve bank that will cash them for you. You can have the funds deposited directly into your checking or savings account by completing the Direct Deposit Sign-Up Form (PDF 5396), which you can download here.
Series I bonds and EE bonds purchased after February 1, 2003 must be held for one year, as opposed to six months for bonds issued earlier, before cashing them in.
For the nitty-gritty on redeeming your bonds, read the Diva's " Rules for cashing in U.S. savings bonds."
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