What is a US Savings Bond?

A US savings bond is a government debt instrument offered to the public for purchase which provides a fixed rate of interest over a fixed period of time. The savings bonds are considered as a virtually risk free investment because it is backed by the full faith of the federal government. The only associated risk with US savings bond is if the government defaults on its obligation to government securities holders.

As a holder of government bonds, your role is that of a creditor loaning money to a debtor, the federal government. Treasury bonds are considered ultra conservative investments as the associated risks are negligible. Due the low risk, US savings bonds do not provide even moderate returns when compared to other types of bonds, such as municipal bonds, corporate bonds, etc.

Marketing of U.S. Savings Bonds to the Public

The Department of Treasury markets the US Savings Bonds through its website TreasuryDirect. The following are benefits of owning US Savings Bonds as outlined by the US Treasury:

• Competitive – Treasury Savings Bonds offer competitive rates of return compared to similar investments. US Savings Bond interest accrues monthly and compounds semiannually.

• Convenience – You can purchase US Savings Bond through Treasury Direct, other online sites, a bank, or with the EasySaver Plan. The EasySaver Plan makes purchasing a US Savings Bond easy by allowing you to buy US Savings Bonds automatically by authorizing the Treasury Department to charge your bank account for the price of the bond.

• Accessibility - You can redeem US Savings Bond easily in case unanticipated emergency arose. US savings Bond redemption can occur after the 12 months from date of purchase.

• Affordability – Savings bonds can be purchased for as little as $25.

• Safety – US Savings Bonds are backed by the full faith and credit of the United States. Additionally, electronic registration with the Treasury gives extra protection in case your savings bonds are lost, stolen or mutilated.

• Tax Considerations - The interest earned on savings bonds is exempt from all local and state income taxes. Federal taxes are deferred until the bonds mature, or until you redeem them, whichever is first. Also, savings bonds can be used to pay for higher education expenses, such as college and university, if you qualify; the earnings are excluded from federal income tax obligations.

Three Types of US Savings Bonds

The three main types of Treasury savings bonds offered to the public are Series EE Savings Bonds, Series I Savings Bonds, and Series HH Savings Bonds.

US Savings Bond Series EE

Series EE Bonds are considered to be low-risk government-backed product for savings; it can be used for financing higher education, supplemental retirement income, and gifts.

US savings bond rates EE series
Purchase US savings bonds series EE after May 2005 are given a fixed coupon rate; US savings bond rates are set twice annually in May and in November and apply to all bond issuances for the next six months. Savings bonds issued after this date go up in value monthly, but interest payments are semiannual.

EE Bonds bought between May 1997 and April 30, 2005, offer variable market rates of return and are based on 5-year Treasury security yields.

How to Purchase an EE Savings Bond
EE Bonds are available for purchase electronically or paper EE Bonds can be acquired through participating employers’ payroll deduction plans or most local financial institutions.

Electronic EE Bonds
Series EE bonds can be purchased, administered, and redeemed electronically through a personal TreasuryDirect account. The US Treasury has a SmartExchange program that permits TreasuryDirect account holders to convert their Series E, EE and I paper US savings bonds to electronic securities.

Buying Paper EE Bonds

• Issued by the US Treasury as paper bond certificates

• Sold to the public at on half their face value; for example, a $50 bond (face value) would cost you $25 but the remaining $25 is available to you at redemption or savings bond maturation.

• Can be bought in denominations of $50, $75, $100, $200, $500, $1,000, and $5,000, and $10,000.

• Purchase maximum of $5,000 per calendar year.

Buying Electronic EE Bonds

• Issued by the US Treasury electronically to your designated account.

• Sold to the public at face value; for example, you pay $25 for a $25 bond. At the time of US savings bond’s redemption, it’s worth its full value.

• Can be bought in amounts of $25 or more.

• Purchase maximum of $5,000 per calendar year.

US Savings Bond Redemption - Series EE
The minimum term for ownership is 1 year and the interest-earning period can be up to 30 years. You can redeem savings bonds series EE in the first 5 years; however, you are penalized 3 most-recent months’ worth of interest. After 5 years, there is no penalty.

Tax Considerations of EE Bonds

• Interest earnings are exempt from State and local income taxes, but are subject to Federal, State, and local estate, inheritance, gift, and other excise taxes.

• Interest earnings are subject to Federal income tax.

• Interest earnings may be excluded from Federal income tax when bonds are used to finance education (see education tax exclusions). Restrictions apply.

Series I US Savings Bond or Inflation-Linked Savings Bonds

The I Bonds are government-issued savings bonds which offer inflationary protection to an investor, as the bond yields are tied to the inflation rate. Exceptionally low-risk investment suitable for the conservative risk-averse investors; these investments have virtually zero default risk and inflationary risk.

The treasury department affords the paper I Bond owners to convert their bonds to electronic securities using their SmartExchange program. .

US Savings Bond Rates I Series
The Series I US Savings Bond have an annual interest rate that is the combined effect of a semiannual inflation rate and a fixed rate. Since the I Bond is an accrual-type security, the interest is added to the bond monthly and is paid to at the bond’s redemption.

How to Purchase an I Savings Bond
Series I US Savings Bond available for purchase via TreasuryDirect, local bank or through payroll deduction.

Electronic I Bonds
As in the case of Series EE bonds, I Bonds can be purchased, administered, and redeemed electronically via a TreasuryDirect account. Also, you can convert your paper I Bonds to electronic securities using the US Treasury’s SmartExchange program for TreasuryDirect account holders.

Buying Paper I Bonds

• Issued by the Treasury as paper bond certificates.

• Sold to the public at face value; for example you pay $100 for a $100 bond.

• Can be bought in denominations of $50, $75, $100, $200, $500, $1,000, and $5,000.

• Purchase maximum of $5,000 per calendar year.

Buying Electronic I Bonds

• Issued by the Treasury electronically to your designated account.

• Sold to the public at face value; for example, you pay $100 for a $100 bond.

• Can be bought in amounts of $25 or more.

• Purchase maximum of $5,000 per calendar year.

US Savings Bond Redemption - Series I
The minimum term for ownership is 12 months and the interest-earning period can be up to 30 years. You can redeem savings bonds series EE in the first 5 years; however, you are penalized 3 most-recent months’ worth of interest. After 5 years, there is no penalty.

Series HH Bonds

As of September 1, 2004, HH Bonds are no longer issued by the U.S. Treasury. Investors aren’t able to reinvest HH Savings Bonds or exchange EE/E Bonds for HH Bonds.

About series HH Savings Bonds

• HH Bonds are considered current-income securities.

• HH Bonds pay fixed interest every 180 days until redemption or maturity, whichever comes first.

• Your HH Bond interest rate is subject to change at the start of the extended maturity period (after 10 years from issue).

US Savings Bond Redemption - Series HH Bonds
You can’t take the HH Bonds to your local bank for redemption. However, the financial institution can help you by:

• Guaranteeing or certifying your signature, and

• Forwarding the HH bonds, with your personal direct deposit account instructions, holding instructions, and any supporting evidence of entitlement to the Treasury Department or a Treasury Retail Securities Site service for your area.

The redemption payment for your HH bonds will be posted in your bank account through direct deposit.

Tax Considerations of HH Bonds

• You are responsible for reporting Interest for tax purposes in the year you earn it.

• Interest is paid out every 180 days.

Who is Eligible to Purchase US Savings Bond

Any individuals, associations, corporations, public or private organizations, and fiduciaries can purchase paper Series EE Bonds. Currently, only individuals can access TreasuryDirect accounts and own electronic savings bonds.

Eligibility criteria for ownership of U.S. Savings Bonds:

• Social Security Number

• US Resident.

• US Citizen living abroad (must have U.S. address of record).

• Federal civilian employee regardless of residence.

• Minors can own U.S. Savings Bonds.

US Savings Bond Resources

US Department of Treasury
Bureau of the Public Debt
TreasuryDirect