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Treasury Savings Bonds
I Bonds
I Bonds are 30-year
variable rate, inflation adjusted debt obligations of the federal
government. I Bonds are a tax deferred, secure, semi-liquid, inflation
protected savings vehicle. The interest rate paid is a blended rate,
consisting of a base fixed rate that remains constant until maturity and a
consumer price indexed rate (CPI –U) that changes semiannually each May &
November.
Interest is paid at
maturity.
I Bonds are sold at face
value, in denominations of: $50, $75, $100, $200, $500, $1,000, $5,000 and
$10,000. $25 bonds are available if purchased through Treasury Direct.
Purchases are limited to $30,000 annually.
The bond could be
redeemed any time after a 12 month holding period. There is an interest
penalty if sold too soon. I Bonds sold within 5 years of purchase will
forfeit their most recent 3 months of interest. There is no penalty after 5
years. You need to keep track of the purchase date, because interest stops
accruing after 30 years.
For income taxes
purposes, you have a choice as to when to declare the interest income. Most
tax payers report on the cash basis; when the government pays you, the tax
is due. Bondholders are also allowed to accrue the interest earned annually
on their tax returns. Civic-minded investors may prefer the early payment of
taxes to help reduce the current budget deficit. If the bonds are sold to
pay qualifying higher education expenses, the interest may be exempt from
federal income taxes. IRS publication 970 contains the details.
I Bonds can be replaced
if lost, stolen or destroyed. It’s important to remember to keep a log of
purchased bonds (physically located separately from the actual bonds),
including the serial numbers, amounts, issue dates and social security
numbers. This information is needed for the bonds to be voided and
re-issued. The same holds true for traveler’s checks.
I Bonds are excellent
investments! They pay a competitive interest rate and they offer a hedge
against inflation. They also make great gifts!
EE / E Bonds
EE Bonds are a good
savings vehicle and are offered in electronic (Treasury Direct) or paper
form. They are secure, pay a competitive positive interest rate, are semi
liquid, and interest income is tax deferred. They also have education
related tax breaks.
EE Bonds issued after
5/1/05 earn a fixed rate of interest that will apply for the 30 year life of
the bond. EE Bonds will increase in value every month; interest compounds
semiannually. The Treasury guarantees that a bond’s value will double after
20 years. At maturity, after 30 years, interest stops accruing. Each bond
also contains a 10 year extended maturity period where new rates and
structures can be applied.
Interest rates for new
issues are updated every May and November.
When purchasing these
bonds electronically through Treasury Direct, they are sold at face value.
For example, you pay $25 for a $25 bond. However, when you purchase the
paper EE bond certificates through a financial institution or through a
payroll savings plan they are sold at half their face value. For example you
pay $25 for a $50 face value bond. The paper bonds are sent to you via the
US post office. Issue prices for electronic savings bonds start at $25,
while those for paper bonds start at $50 face value.
The bonds are redeemable
any time after 12 months. If you sell the bonds within the first 5 years of
purchase, there is a 3 month forfeiture of interest penalty.
EE Bonds make good gifts
and are great for birthdays, anniversaries, and other special events. Their
30 year life makes them excellent investments for long-term goals, like
college and retirement savings.
HH / H Bonds
HH /H Bonds are no
longer available for purchase. The critical issue seems to be: how long can
you hold these bonds and still earn interest?
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H Bonds issued through December
1979 : 30 years
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HH Bonds issued January 1980
through 2004: 20 years
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