Financial Security in Life: Now and Later U.S. Savings Bonds: Saving for Your Future

for qualified higher education penalty equal to the last three What are savings expenses. months of earned interest. bonds? Accessibility The money you place in savings Savings bonds are issued by the bonds is available whenever you What types of U.S. U.S. Treasury Department. When want following an initial holding Savings Bonds are buying them you are making a period of twelve months from the available? loan to the Federal Government. issue date. If redeemed earlier They offer a safe place for your EE Bonds than five years from the issue savings dollars. The Series EE Savings Bond date, however, an early redemp- is an accrual type of security tion penalty equal to the last meaning interest is added to the three months of earned interest is bond monthly and paid when the Why should I buy them? assessed. bond is cashed. They are sold in Safety Convenience denominations of $50, $75, $100, Savings bonds are backed by the You can buy savings bonds online $200, $500, $1,000, $5,000, and full faith and credit of the United at http://www.treasurydirect.gov/, $10,000. States. Your principal and earned through a payroll savings plan, or Interest accumulates monthly and interest are safe and cannot be at over 40,000 financial institu- is compounded on the semi- lost because of changes in the tions nationwide. market. Because they are regis- annual anniversary of the bond’s tered with the Treasury Depart- issue date. Series EE Bonds ment, they can be easily replaced issued from May 1, 2005, to the Do savings bonds have if lost, stolen, or destroyed. present earn a fixed rate of inter- any disadvantages? est. Savings bonds issued prior to Affordability that date will continue to be gov- As with any investment, savings You can buy savings bonds for as erned by the terms in effect when bonds also have disadvantages. little as $25. Participants in a pay- they were issued. For example, roll savings plan may buy them in l Bonds cannot be cashed Series EE Bonds purchased even smaller installments. within the first twelve months between May 1997 and April 30, 2005, earn a variable market- Tax advantages after purchase. l If cashed prematurely, bonds based rate of return determined l Earnings are exempt from all will not reach their face value. each May 1 and November 1. state and local income taxes. l No current income is received l Payment of federal income You can purchase no more than for Series EE or I Bonds. taxes can be deferred until the $30,000 ($60,000 face value) of l Other investments may pro- bonds are redeemed or until Series EE Savings Bonds in the vide a higher rate of return. final maturity for Series EE and paper form in your own name I Bonds. in each calendar year. You may, l If cashed within the first five l Earnings may be exempt from however, purchase an additional years from the issue date, federal taxes if used to pay $30,000 Series EE in electronic you pay an early redemption

College of Agricultural Sciences Agricultural Research and Cooperative Extension form through http://www.trea- rate of return. Interest is added to bonds are purchased at half their surydirect.gov/. Your Series EE the bond monthly, compounded face value; e.g., you pay $25 for a Savings Bond purchase limit is semiannually, and paid when the $50 bond but it will not be worth not affected by Series I Bonds bond is cashed. They are sold its face value until it has matured. you may have purchased. at face value in denominations By contrast, electronic bonds are of $50, $75, $100, $200, $500, purchased at face value; e.g., The Treasury Department guaran- $1,000, $5,000, and $10,000. you pay $50 for a $50 bond and tees that these bonds will grow to it’s worth its full value, including reach face value in 20 years from For I Bonds, the purchase limit accumulated interest, when it’s the issue date. If market condi- is $30,000 per Social Security available for redemption. If you tions do not allow this, a one-time Number per calendar year in the choose paper bonds, you can adjustment is made to bring the paper form. An additional $30,000 purchase them at a bank or credit bonds up to face value, after can be purchased in electronic union or use your employer’s which they continue to earn inter- form through http://www.treasury- payroll deduction plan. Electronic est at market-based rates until direct.gov/. Your Series I Bond bonds can be purchased online they reach final maturity 30 years purchase limit is not affected by at http://www.treasurydirect.gov/ from the issue date. Series EE Bonds you may have using your credit card or through purchased. a recurring deduction from your The Patriot Bond is a special type personal bank account or payroll of Series EE Savings Bond. It is The I Bond interest is made up deduction plan. identical to the Series EE Bond of two parts. One is a fixed rate except that it has the words “Pa- that remains the same for the Individuals, corporations, as- triot Bond” printed on it. life of the bond. The second is sociations, public or private orga- an inflation adjustment that is HH Bonds nizations, and fiduciaries can buy updated every six months to track Series EE Bonds. You can own Although new HH Bonds have the inflation rate and is computed U.S. Savings Bonds if you have a not been issued since September using the Consumer Price Index Social Security Number and are 1, 2004, some investors may still published by the Bureau of Labor a resident of the United States, a own or inherit HH Bonds that Statistics. citizen of the United States resid- have not yet reached maturity. ing abroad, or a civilian employee Series HH Savings Bonds reach Every May 1 and November 1, the of the United States regardless of final maturity and stop earning Treasury Department announces residence. interest 20 years from their issue the fixed rate that will be in effect date. Any interest from other sav- for all I Bonds issued in the next Unlike other securities, minors ings bonds that were exchanged six months. may own U.S. Savings Bonds. to buy your Series HH Savings A parent, other relative, or friend If you buy an I Bond in Janu- Bonds must be included as can buy a bond for a minor who ary, for example, it will earn the taxable income on your federal doesn’t have a Social Security composite rate in effect at that income tax return for the year in Number. In this case, or if the time. In July, after six months, the which your Series HH Savings minor’s Social Security Number applicable interest rate will be the Bonds reach final maturity. (SSN) isn’t known, the purchas- sum of the initial fixed rate of in- ers are required to provide their Series HH Savings Bonds are a terest and the inflation adjustment own SSN but do not incur a tax current income security, mean- announced the previous May. The liability. ing that interest is paid to the following January, the process is bondholder as it is earned rather repeated using the inflation ad- than accruing. Every six months justment announced the previous you receive an interest payment November. Registration Options by direct deposit to your check- Registration establishes the own- ing or savings account. When ership of the bonds and who is redeemed, you receive only the Buying Bonds entitled to redeem them. Savings face value of the bond. bonds are owned exclusively by Savings bonds cannot be sold or the person or persons named on I Bonds bought from anyone except an them. The most common forms I Bonds are the newest type of issuing and redeeming agent au- of registration are single owner- bond designed to protect the thorized by the Treasury Depart- ship, co-ownership, or with a purchasing power of the invest- ment. You have a choice of paper named beneficiary. The Social ment and earn a guaranteed real bonds or electronic bonds. Paper Comparison of the Series EE and HH Savings Bonds and the I Bond

Series EE Savings Bond Series HH Savings Bond I Bond

Features Paper bonds ssued at 50 percent of As of September 1, 2004, investors are Issued at face value. face value. (A $50 bond costs $25.) no longer able to exchange EE/E bonds Electronic bonds issued at face value. for HH Bonds or reinvest HH bonds. Paper bonds offered in eight Previously issued in four denominations Same as EE. denominations ($50, $75, $100, $200, at face value ($500, $1,000, $5,000, $500, $1,000, $5,000, and $10,000). and $10,000). Electronic bonds issued in any amount ($25 to $30,000). For paper bonds, Social Security No longer available. For paper bonds, per Social Security Number annual purchase limit of Number annual purchase limit of $30,000 issue price ($60,000 face $30,000. In addition, may purchase value). In addition, may purchase $30,000 in electronic savings bonds. $30,000 in electronic savings bonds. Series EE purchases do not count Series I purchases do not count toward limit. toward limit.

Interest Bonds issued after May 1, 2005, earn Interest rate is set when bought and Calculated as an earning of a fixed a fixed rate of interest set at the time at 10 years from the issue date. rate of return and a semiannual of purchase. Bonds issued prior to inflation rate based on CPI-U. May 1, 2005, will continue to earn interest according to the terms in effect when they were issued. Rates announced every May 1 and New issues have been 4 percent since Same as EE. November 1. March 1, 1993. Guaranteed to reach face value in No change in face value, and interest No guaranteed level of earnings. 20 years. rate is set at purchase date. Increases in value monthly, and Does not increase in value. Interest is Generally increases in value monthly, compounds semiannually. Interest is paid semiannually directly to your and interest compounds semi- paid when the bond is redeemed. checking or savings account. No annually (except in periods of interest is paid for incomplete deflation when the bond value could six-month intervals. remain unchanged). Interest is paid when the bond is redeemed. Earn interest for up to 30 years. Earn interest for 20 years. Life span: same as EE.

Cashing Can be redeemed after first twelve Since HH bonds have not been issued Same as EE. months. since September 2004, all HH bonds are eligible for redemption without penalty. A three-month interest penalty applies Same as EE. to bonds redeemed during the first five years. Financial institution reports interest Interest is reported as income for the Same as EE. earnings (the difference between period in which it is earned, not when redemption value and purchase price) it is received. Any interest income on IRS form 1099-INT. Savings bonds statement (1099-INT) is issued by are exempt from state and local January 31 of each year and shows the income taxes. interest earned for the previous year. Eligible for tax benefits upon redemption Not eligible. Same as EE. when used for qualified education expenses.

Security Number of the person A second registration option without the consent or knowledge named on the bond is required. is co-ownership, meaning two of the other, but a co-owner’s Single ownership means only one people are named on the savings name may not be removed with person’s name is on the savings bond, each having equal owner- out the consent of the other. bond. Only the owner or his or ship rights to it. Only two co- Upon the death of one of the co- her authorized representative can owners are permitted. Both owners, the bond becomes the redeem the savings bond. On the names are on the bond and property of the other co-owner. death of the owner, the bond be- connected by the word “or,” as comes part of the owner’s estate. in John Doe or Mary Doe. Either The third registration option is to person may redeem the bond name a beneficiary on the bond. In this case, the names of the You may redeem your savings Under the Education Savings owner and beneficiary will be bonds at any time after the Bond Program, you may be able connected by the initials “POD” twelve-month holding period. Re- to exclude some or all savings (Payable on Death). The owner member, however, if you choose bond interest from federal income has sole ownership rights of the to redeem them before five years tax when you pay qualified bond during his or her lifetime, from the purchase date, you pay higher-education expenses at an including the ability to redeem the an early redemption penalty equal eligible institution or state tuition savings bond and responsibility to the last three months of earned plan in the same calendar year for federal income taxes on the interest. the bonds are redeemed. Series interest. When the owner dies, the EE Bonds issued January 1990 beneficiary becomes sole owner and later and all I Bonds are of the savings bond. Replacing Lost or eligible for this program. Your Stolen Bonds filing status and modified adjust- Generally, Series EE and Series able gross income affect the I Bonds have the same rules for If your savings bonds are lost, amount of interest you are able to registering, but there are differ- stolen, or destroyed you can have exclude. See IRS Publication 970 ences in who may own the two them replaced. The process will for details. series. Series I Bonds may be be easier if you have a record of registered only in the names of the serial numbers, issue dates, individuals and, in some cases, registration information, and the Resources fiduciaries, such as trusts. Series Social Security Number that ap- EE Bonds may be registered in pears on them. Keep the record For additional information, visit these same ways and also in the in a safe place, separate from the following Web sites: names of companies, associa- the bonds themselves. You can l tions, and public bodies. file a claim by writing to Bureau http://www.savingsbonds.gov/ l of the Public Debt, Parkersburg, http://www.publicdebt.treas.gov/ l WV 26106-1328. You’ll need to http://www.treasurydirect.gov/ Redeeming Savings complete form PDF 1048. Bonds Sources: The U.S. Savings Bonds Owners Manual, Bureau of the Savings bonds can be redeemed Public Debt, U.S. Department of Tax Considerations by the person whose name the Treasury, August 2004. appears as the sole owner or a Savings bonds are subject to Prepared by Robert J. Thee, Ph.D., co-owner. If you are named as estate, inheritance, gift, or other CFP®, extension educator, Penn State a beneficiary, you must present excise taxes, whether federal or Cooperative Extension in Chester proper identification and a certi- County, in consultation with Marilyn state. Furry, Ph.D., associate professor of fied copy of the owner’s death agricultural and extension education. certificate. Any increase above the pur- Visit Penn State’s College of Agricultural Sciences on the chase price is interest and is Web: www.cas.psu.edu Bonds can be redeemed at any Penn State College of Agricultural Sciences research, exten- subject to federal income taxes sion, and resident education programs are funded in part by of the 40,000 financial institutions Pennsylvania counties, the Commonwealth of Pennsylvania, but exempt from state and local and the U.S. Department of Agriculture. that the Treasury Department has This publication is available from the Publications Distribution income taxes. If you do nothing, Center, The Pennsylvania State University, 112 Agricultural authorized as paying agents. Any Administration Building, University Park, PA 16802. For your bond interest is deferred for information telephone 814-865-6713. amount of I Bond and Series EE federal income tax purposes, but Where trade names appear, no discrimination is intended, and no endorsement by Penn State Cooperative Extension Savings bonds can be redeemed you may also choose to report is implied. at an institution where you have This publication is available in alternative media interest each year as it accrues. If on request. an account in good standing for The Pennsylvania State University is committed to the you choose to defer taxes, using policy that all persons shall have equal access to programs, at least six months. In general, facilities, admission, and employment without regard to the cash basis, you must use this personal characteristics not related to ability, performance, other financial institutions may or qualifications as determined by University policy or by method for all Series EE and I state or federal authorities. It is the policy of the University redeem no more than $1,000 in to maintain an academic and work environment free of Bonds you own or may purchase discrimination, including harassment. The Pennsylvania State savings bonds for noncustomers. University prohibits discrimination and harassment against in the future. You may only switch any person because of age, ancestry, color, disability or handicap, national origin, race, religious creed, sex, sexual from the accrual basis to the orientation, or veteran status. Discrimination or harassment Series HH Savings Bonds must against faculty, staff, or students will not be tolerated at The cash basis with IRS permission. Pennsylvania State University. Direct all inquiries regarding be sent to your servicing Federal the nondiscrimination policy to the Affirmative Action Direc- A switch from the cash to the ac- tor, The Pennsylvania State University, 328 Boucke Building, Reserve Bank to be redeemed. University Park, PA 16802-5901, Tel 814-865-4700/V, crual basis may be done without 814-863-1150/TTY. Your financial institution can help IRS permission. © The Pennsylvania State University 2006 with this. Produced by Information and Communication Technologies in the College of Agricultural Sciences Code # UI375 Rev4M8/06mpc4497f