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Your Money's Worth...

May 4, 2008
By STEVE BAILEY
At some point in time it seems that everyone gets some type of savings bond, whether it is for their birthday, Christmas, or as a prize in a contest.

Once people receive a Savings Bond they usually put them in a safe place and forget about them until they dig them out sometime in the future to try and figure out what it is worth.

Savings bonds are debt obligations of the U.S. Government and are backed by the Government’s full faith and credit. There are different types of Savings Bonds that are currently issued and each of them has different characteristics.

The most common types of Savings Bonds issued today are the I Savings Bonds and the EE Savings Bonds. Both of these bonds can be purchased as paper bonds or electronic bonds.

The Inflation Indexed — or I Bond — is designed to offer a way to save that protects the purchasing power of their investment by assuring them a real rate of return over and above inflation. Paper bonds are sold at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000 and earn interest for as long as 30 years.

Electronic bonds can be purchased for the same denominations as paper bonds with the addition of a $25 bond. I Bond earnings are added every month and interest is compounded semiannually. They are state and local income tax exempt and federal income tax on I Bond earnings can be deferred until the bonds are cashed or stop earning interest after 30 years. Investors must hold their I Bonds for a minimum of 1 year and if they cashed in before five years they are subject to a 3-month earnings penalty.

The Series EE Savings Bonds pay interest equal to 90 percent of the average 5-year Treasury securities yield for the preceding six months. This means that the rates on EE bonds are based on rates set by participants in the large government bond trading market. Besides the computation of interest on the E Bonds, they have the same characteristics of the I Bonds. The Series EE bond replaced the E bond that was associated with World War II war bonds. Series HH bonds used to be able to be exchanged to EE bonds until September 1, 2004.

It is important to check your savings bonds periodically to determine if they are still earning interest, and if they are not, they should be redeemed. The table below shows how long you can expect them to earn interest based on their issue date.

Series: Issue Date No. of Years Bonds Earn Interest

E May 1941- Nov. 1965 40 years

E Dec. 1965- June 1980 30 years

EE All Issues 30 years

H Feb. 1957-Dec. 1979 30 years

HH All Issues 20 years

I All Issues 30 years



Steven J. Bailey CFP®, CLU, ChFC is a registered representative of American Portfolios Financial Services, Inc. Member FINRA/SIPC, Advisory Services offered through American Portfolios Advisors, Inc., located at 992 E. State St. Salem and can be reached at 330-337-7720 or www.baileyfinancialplanning.com if you should have any further questions regarding this matter.



 
 
 

 

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