UpDate - Vol. 13, No. 27, Page BB-1
April 14, 1994
Buy 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 18 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. 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 and 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, 5,000 and $10,000.
How much interest do U.S. Savings Bonds pay?
Series EE Bonds issued on or after November 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, 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 November 1, 1986, pay
interest semi-annually at a fixed rate set at the time of purchase.
To obtain current Series EE Bonds minimum and semi-annual market-
based rates, and the fixed Series HH Bond rates, call 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
at 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 soon thereafter. All interest income from deferral bonds
is reportable for federal income tax purposes in the year the bond is
cashed.
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.
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.
TWI 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 two and above to have social security
numbers.
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. 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 case, 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 U.S. 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 U.S. 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 Bureaus 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 exchange 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 your 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 semi-annual interest earned by the HH Bonds must be reported
annually for federal income tax purposes.
What taxes am I liable for on my U.S. 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.
Is there a tax break for U.S. Savings Bonds owners?
Yes, 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.
I want to use U.S. 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
equalled or exceeded by tuition and fees paid to a qualified post-
secondary educarional instituion, 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 $70,350 modified adjusted gross income with a phase out
of benefit to $100,350. For single taxpayers, the comparable incomes
are $46,000, with a phase out to $61,900. (Income limits specified
are for tax year 1990. For future years the limits are indexed for
inflation.) For additional details, request 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.