UpDate - Vol. 12, No. 27, Page U.S. SAVINGS BONDS - 2
April 15, 1993
U.S. Savings Bonds
Q&A

Two kinds of savings bonds are currently available, Series EE and Series
HH. What's the difference?
     The Series EE bond is an appreciation-type security that is issued for
an original maturity of 12 years and is available in denominations of $50,
$75, $100, $200, $500, $1,000, $5,000 and $10,000. The purchase price is
one-half the denomination; for example, a $100 bond costs $50. They may be
purchased at most commercial banks, many savings institutions and through
the payroll savings plan offered by thousands of employers, including the
University of Delaware. (The $50 and $75 denominations are not available to
payroll savers.)
     Series HH bonds are current-income securities, issued only in exchange
for Series E and/or EE bonds and/or Savings Notes with redemption values
totaling $500 or more, for an original maturity of 10 years. In addition,
the proceeds of a matured Series H bond may be reinvested in a Series HH
bond (any tax deferral applying to the H bond principal expires at the time
the H bond matures). HH bonds are issued and redeemed at face value, with
interest paid semi-annually by electronic funds transfer from the Treasury
Department. Denominations are $500, $1,000 and $10,000.

How much interest do savings bonds pay?
     Series EE bonds issued on or after Nov. 1, 1982, and held at least
five years, earn interest at a variable, market-based rate, or a minimum
rate, whichever is more. The market-based rate is equal to 85 percent of
the average yield on five-year Treasury marketable securities during the
time the bond is held, compounded semi-annually. (Treasury marketable
securities are United States obligations, such as Treasury bonds and
Treasury notes, which may be bought and sold in the market.) Interim
market-based rates, useful for tracking the market-based average applying
to a bond, are announced each May 1 and Nov. 1. Bonds held less than five
years earn interest on a fixed, graduated scale. Minimum rates vary
according to the issue dates of individual bonds.
     Series HH bonds issued on or after Nov. 1, 1986, pay interest
semi-annually at a fixed rate set at the time of purchase.
     Current minimum rates and semi-annual market-based rates for Series EE
bonds and the fixed Series HH bond rate can be learned by calling
toll-free, 1-800-4US BOND.

When do EE bonds reach their face value?
     An EE bond reaches face value no later than the end of the term in
which it was issued. This term is based on the minimum rate in effect when
the bond is issued. If the market-based rate applying to the bond is higher
than the minimum, it reaches face value sooner. In either case, the bond
continues to earn interest for its full term.

What happens if a bond is held beyond final maturity?
     Such bonds should be redeemed or-in the case of Series E or EE bonds
or Savings Notes- exchanged for Series HH bonds at final maturity or as
soon thereafter as possible. Since all interest income from deferral bonds
is reportable for federal income tax purposes in the year the bond reaches
final maturity, it is unwise to hold any bond beyond its final maturity
date.

Who can buy savings bonds?
     Residents of the United States, its territories and possessions, and
residents of Puerto Rice; citizens of the United States residing abroad;
civilian employees of the United States and members of the armed services,
regardless of residence or citizenship can buy bonds. Residents of Canada
and Mexico who work in the United States may also purchase bonds, but only
through payroll savings plans.

In what ways can a bond be registered?
     One owner only-Upon death, the bond becomes part of the owner's
estate.
     Two persons as co-owners- Either may cash the bond without the
knowledge or approval of the other. On the death of one owner, the other
becomes sole owner of the bond.
     One owner and one beneficiary- The beneficiary, if he or she survives,
automatically becomes owner of the bond when the original owner dies.

Can a parent, other relative or friend buy a bond for a minor who does not
have a Social Security Number?
     Yes. To do so, the purchaser is required to provide his or her Social
Security Number. Such bonds can also be registered in co-ownership form,
providing the purchaser is not one of the co-owners. If the purchaser is
registered as co-owner of such a bond, the purchaser's name will be listed
first on the bond, and it will be considered the purchaser's property for
tax purposes. IRS regulations require all children aged 2 and above to have
a Social Security Number. The number of the registered owner, minor or
adult, should be used whenever possible.

If a bond is lost, stolen or otherwise destroyed, what should I do?
     The bond will be replaced without cost upon the filing of an
application establishing the loss. It will be helpful if you have kept a
record of the bonds, with their issue dates and serial numbers, in a safe
place separate from the bonds themselves. Details of the loss, along with
partially destroyed bonds if burned or mutilated, should be sent to the
Bureau of the Public Debt, Parkersburg, WV 26106-1328. Filling out Form PD
F 1048 will help speed replacement. These forms are often available from
local banks or from the nearest Federal Reserve Bank or branch or the
Bureau of the Public Debt. Reissued bonds bear the original issue date.

If I want to buy a bond as a gift and don't know the Social Security Number
of the recipient, what should I do?
     In such cases, your Social Security Number is placed on the bond,
along with the recipient's name and address. However, purchasers of gift
bonds should always make every effort to obtain the Social Security Number
of the registered owner before purchasing the bond.

To cash a co-ownership bond, are both owners' signatures required?
     No. Only one co-owner's signature is necessary.

How can I add, remove or change the name of the beneficiary on my bonds?
     Complete form PD F 4000, available from Federal Reserve banks and
branches or from many local savings bond issuing agents. If a living
beneficiary is being removed, his or her signature is necessary for Series
E bonds; the consent of the beneficiary is not necessary for Series EE
bonds.

How and where can I redeem (cash in) my savings bonds?
     Series E and EE bonds can be redeemed at most financial institutions.
However, agents cannot redeem bonds issued to a guardian or trustee, a
corporation or other type of company or institution or bonds where
documentary evidence-such as a power of attorney-is required to cash them.
(Agents are permitted-but not required-to redeem bonds for registered
beneficiaries in deceased owner cases when the beneficiary presents a
certified copy of the owner's death certificate.) Such bonds must be
redeemed by Federal Reserve banks or branches or by the Bureau of the
Public Debt.
     Most agents will forward bonds they are not authorized to redeem to
their Federal Reserve Bank. Agents may limit the amount of bonds they
redeem for persons other than established customers. Satisfactory proof of
identify is required in all cases.
     All Series HH bonds are obtained from and redeemed by Federal Reserve
banks or branches or the Bureau of the Public Debt. Most local financial
institutions will help in these transactions.

How long must I hold a bond before I can redeem it?
     Six months from the issue date inscribed on the bond.

Why do some people choose to exhange their E or EE bonds or Savings Notes
for HH bonds?
     Some bond holders prefer to receive current income twice yearly
through HH bonds. People who make this exchange can continue to defer taxes
on the interest already earned on their former E or EE bonds or Savings
Notes until the HH bonds are redeemed. Exchanges become particularly
advantageous as E bonds near final maturity.

Please explain the tax deferral privilege for exchanging bonds?
     When you exchange E or EE bonds or Savings Notes for HH bonds, the old
bonds-principal and interest-become part of the new HH bonds and you have
the option of continuing to postpone reporting the accrued interest earned
for federal income tax purposes. If this option is chosen, taxable interest
is noted on the face of the new HH bonds. When the HH bonds are cashed,
disposed of, or reach final maturity, you must-for that tax year-report
this deferred interest amount on your federal income tax form.
     To retain the tax deferral privilege, E and EE bonds and savings notes
must be exchanged for HH bonds no later than one calendar year after the
bonds or notes reach final maturity. For example, E bonds purchased on any
day in the month of December 1949 reached final maturity on Dec. 1, 1989.
To retain tax deferral, the E bonds must have been exchanged for HH bonds
no later than Dec. 31, 1990.
     The semiannual interest earned by the HH bonds must be reported
annually for federal income tax purposes.

What taxes am I liable for on my savings bonds interest?
     Federal income, gift and estate taxes; state inheritance or estate
taxes. Savings bonds are exempt from state and local income and personal
property taxes.

I want to use savings bonds to build college funds for my child. How should
I proceed to minimize taxes?
     Savings bonds purchased after Dec. 31, 1989, may be exempt from
federal income tax on the interest if the proceeds are used to pay tuition
and fees at institutions of higher learning.
     Bonds must be purchased in the names of one or both parents-not in the
name of the child.
     The owner must be at least 24 years old at the time of purchase. In
the year bonds are redeemed, the bond proceeds must be equaled or exceeded
by tuition and fees paid to a qualified post-secondary educational
institution, net of grants or scholarships, to gain full benefit. Income
limitations also apply in the year of redemption.
     For parents filing jointly, the limit for a full exemption is $68,250
modified adjusted gross income with a phase out of benefit to $98,250.
     For single taxpayers, the comparable income is $45,500, with a phase
out to $60,500. (Income limits specified are for tax year 1993.
     For future years, the limits are indexed for inflation.)
     For additional details, request a copy of the free publication
SBD-2017 from the Office of Public Affairs, U.S. Savings Bonds Division,
Washington, DC 20226.
     The publication also suggests alternative procedures for families
whose income exceeds that needed for a full exemption.

What are the options for Series E bonds at final maturity?
     E bonds may be redeemed at your local bank or a Federal Reserve Bank
or branch or by the Treasury Department.
     They may also be exchanged for Series HH bonds.
     If you redeem your bonds and you have deferred reporting interest
yearly for federal income tax purposes, you are required to report all
accrued interest in the year the bonds reached final maturity.
     If you exchange your matured bonds for HH bonds, within a year after
they reach final maturity, you can continue to defer reporting, for federal
income tax purposes, any accrued E bond interest on the securities
exchanged until the HH bonds are redeemed, disposed of or reach final
maturity.
     HH bond interest must, however, be reported annually.

Is there a tax break for savings bonds owners?
     Yes. First, you never pay state or local income taxes on savings
bonds.
     In addition, by waiting to report the interest on Series E and EE
bonds and Savings Notes until you cash your bonds, or until they reach
final maturity, you will be earning interest on principal plus the full
untaxed interest previously earned.
     Beginning with bonds purchased in 1990 and used to pay for qualified
educational expenses, interest may be free from federal income tax as well.