HOW MUCH DO YOU KNOW ABOUT U.S. SAVINGS BONDS?
For some people, U.S. savings bonds are what you give your newborn grandchild or your niece who just graduated from high school. But, savings bonds could have a place in your own investment portfolio, particularly if you’re looking for low-risk investments. The answers to these frequently asked questions concerning savings bonds might help you decide.
WHAT TYPES OF U.S.SAVINGS BONDS ARE AVAILABLE?
Series EE Bonds: These savings bonds replaced the Series E bonds. They are purchased at a discount of half their face value. You cannot biy more than $5,000 during the calendar year. EE bonds increase in value as the interest accrues and pay interest for 30 years. When EE bonds come due, you are paid your orginal investment plus all of the interest.
Series HH Bonds: These bonds can be purchased but only in exchange for Series EE, E bonds and Savings Notes, or with the proceeds from a matured Series HH bond. Unlike EE bonds, Series HH bonds are purchased at their face value of $500 or $10,000 demoninations, but there is no limit on the amount you can purchase, and these bonds don't increase in value and have a maturity of 20 years.
Series I Bonds: These bonds are sold at face value and grow with inflation-indexed earnings for up to 30 years. Up to $5,000 cna be purchased in a calendar year.
HOW LONG DO SAVINGS BONDS EARN INTEREST?
Savings bonds earn interest on a tax-deferred basis for 30 years from the issue date.
WHERE DO I BUY SAVINGS BONDS?
You may buy paper savings bonds at financial institutions authorized by the Treasury Department or through employer payroll deduction plans. You can buy and hold savings bonds in an electronic account at www.TreasuryDirect.gov.
HOW DO I REDEEM MY SAVINGS BONDS?
To cash in your Series EE or Series I bonds, take them, along with proper identification, to your financial institution. Keep in mind that savings bonds issued after February 2003 must be held for a minimum of one year before they can be redeemed, and if you redeem them in less than five years after purchase, you forfeit the three most recent months of interest.
WHAT TAX ADVANTAGES DO SAVINGS BONDS OFFER?
The interest earned on savings bonds is always exempt from state and local income taxes. You can defer federal income taxes on the interest your bonds earn until the savings bonds reach final maturity or you redeem them. However, you may elect to treat the annual increase in value of these bonds as income in each year.
Your earnings from Series EE and Series I savings bonds may be excluded from federal income tax if you pay qualified higher education expenses in the same year you redeem the savings bonds. Your household income must meet certain guidelines to qualify for this exclusion.
A CPA can help you determine how to make the most of your investment in savings bonds.