UpDate - Vol. 14, No. 28, Page Bonds-1
April 20, 1995
Buy Bonds
Q & A

Two kinds of savings bonds are currently available, Series EE and
Series HH. What is the difference?
     The Series EE bond is an appreciation-type security that is
issued for an original maturity of 18 years. It 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, 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 semiannually 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 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 semiannually.
(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
semiannually at a fixed rate set at the time of purchase.
     To obtain current Series EE bonds' minimum and semiannual 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
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 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 Rico; 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 also may
purchase bonds, but only through payroll savings plans.


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


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


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 also can 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 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 PDF 1048 will help speed replacement. These
forms are often available from local banks or from the nearest Federal
Reserve Bank or branch, or from 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 a 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.


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.


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 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?
     You are liable for federal income, gift and estate taxes as well
as state inheritance or estate taxes. Savings bonds are exempt from
state and local income and personal property taxes.


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.


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.
     There are tax benefits for parents filing jointly and comparable
tax benefits for single taxpayers.
     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, a Federal Reserve
bank or branch or by the Treasury Department.
     They also may 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.