U.S. SAVINGS BONDS: INVEST TODAY — ENJOY TOMORROW!
Savings bonds have benefits that can work for you!
How Compounding Builds Savings
Series EE — An Accrual Security
How Market-Based Rates Work
Interest Added Monthly
Minimum Holding Period
Purchase Limits
Registration
Face Value
30-Year Interest Earning Life
Buying Series EE Savings Bonds
Bonds As Gifts
Savings Bonds Tax Benefits
Tax Exclusion for Higher Education
Tax Rules For Children And Dependents
Series HH Bonds — The Current Income Option
Changing Bond Registration
Lost, Stolen Or Destroyed Bonds
Savings Bond Wizard
More Information
Savings Bonds Regulations
Treasury Department Circulars

Ever wonder why U.S. Savings Bonds stay so popular in America's ever changing financial landscape? The answer's easy...Series EE savings bonds are a great way to save! And buying bonds regularly is one of the easiest ways to invest today so you can enjoy tomorrow!

All of us need to ask ourselves the question...am I saving enough money today to reach the goals I have in life? If you are like many Americans, the answer probably is, "I'm saving some, but really not enough." Our savings goals are as diverse as our great nation: retirement, investing in our children's education, a down payment on a first home or just having a ready reserve for those surprises in life.

Whatever your goal, one thing is certain. Series EE bonds are a great way to invest today to enjoy your tomorrows. All you need do is make the decision to buy bonds regularly.

Savings bonds have benefits that can work for you!

We asked savings bond investors about the savings bond features they value. Here's what they told us. See if bonds might fit your savings needs.

• Safety: Savings bonds are a unique security as safe and secure as the U.S. Treasury. You never have to worry about the safety of your investment. You are paid the principal and interest due you when you cash your bond. Your bonds can be replaced if lost, stolen or destroyed.
• Ease of Purchase: It's hard to find an easier, more affordable way to invest. All you need to do is decide how often to buy a bond. Bonds cost as little as $25 for a $50 bond. Your bonds are sent directly to you or the bond owner you choose.
• Tax Advantages: The interest you earn on your Series EE bonds is exempt from State and local income taxes. You can defer Federal income tax until you redeem the bonds or they stop earning interest after 30 years. This means you can plan ahead and choose when might be the best time to realize income for tax purposes. And, since your interest isn't taxed until you redeem a bond, your savings grow faster because interest compounds on the full value of the bond before taxes.
• Financing Education: Savings bonds can help you save for education. Lower and middle income investors may be eligible for special tax benefits. If you qualify, you can exclude all or part of the interest earned on Series EE bonds from income when you cash the bonds to pay for post-secondary tuition and fees.
• Retirement: Savings bonds can be an excellent way to help build savings for retirement. The combination of a thirty year interest earning life and the other features of bonds make them attractive to many investors.
• Improved Market-Based Rates: Series EE bonds now earn 90% of the average yield on 5-year Treasury securities. Bonds increase in value every month. The rate changes every six months ... so your investment always tracks Treasury market yields.
• Liquidity: You can cash Series EE bonds any time after six months. Most investors plan to hold bonds for longer term goals yet they know they can get their money with interest if they need it. There is a 3-month interest penalty if you redeem your bonds before five years.

Find out more about the features that appeal to you by reading this brochure. We want you to know how Series EE bonds work, so you can decide how bonds can fit into your plans. An informed investor is our best customer.

How Compounding Builds Savings

Treasury can't predict what the earnings on EE bonds will be in the future, but we can illustrate how compound interest works to the advantage of the investor who saves regularly. Let's take a look at two savers with similar long-term savings goals. The first saver begins investing $100 a month in savings bonds today with a goal of building a nest egg for the future. If this saver's average return is 5 percent compounded semiannually, the nest egg will amount to $81,926 in 30 years. Let's meet another saver who wants to have the same nest egg but waits 15 years to begin saving. In order to end up with the same amount, on the same date, our second saver must begin saving $310 each month, at the same average return.

There are many ways to save and invest for the future and your personal savings plan should reflect your goals. Once you decide how much you want to save, U.S. Savings Bonds make it easy to help you reach your goal.

Series EE — An Accrual Security

Series EE bonds are Treasury securities that earn interest at market-based rates for up to 30 years. The purchase price of a bond is 50 percent of its face amount; for example, a $100 bond costs $50. Interest is added to the redemption value every month and paid to the investor when the bond is redeemed. The issue date for EE bonds, printed in their upper right hand corner, is the month and year an authorized issuing agent received the full purchase price of the bond. The issue date determines when a bond begins and stops earning interest. Bonds are available through financial institutions in $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000 denominations.

How Market-Based Rates Work

Series EE bonds earn market-based rates. Your bonds earn a new rate every six months. Bond interest rates are based on market yields of actively traded Treasury notes and bonds.

Each May 1 and November 1 Treasury announces a Series EE saving bond rate that is 90% of the average of 5-year Treasury security yields for the six months before the rate announcement.

Bonds earn these rates right from the start. Bonds cashed before five years are subject to a 3-month interest penalty. For example, if you cash a bond after 18 months you will get 15 months' worth of interest. There is no penalty once you've held a bond five years.

Interest Added Monthly

Interest is added to the value of EE bonds every month and compounded semiannually at the announced rate. The announced interest rate is compounded semiannually. Since bond interest is compounded semiannually, the full value of your bond (principal and interest) is always reinvested at the current market-based rate.

Minimum Holding Period

Ideally, you will hold bonds for the longer term. However, if you find you need your funds you can redeem bonds after six months. For example, a bond issued in January can be redeemed in July. Remember, if you cash a bond before five years there is a 3-month interest penalty.

Purchase Limits

A limit of $15,000 purchase price, per person, per calendar year, applies to EE bonds. In the case of coownership bonds, you can attribute the value of the bonds to either coowner in any proportion but no more than $15,000 can be attributed annually to any coowner. A beneficiary listed on a bond does not increase the purchase limit for the owner.

Registration

The names on a savings bond, its registration, establish the legal right to bond ownership. You can register your bonds in the names of individuals in one of three ways: single ownership, coownership, or beneficiary form.

You can name up to two individuals as coowners or as owner and beneficiary on a bond. You can buy bonds in the names of public or private organizations as single owners only, except that you can designate the U.S. Treasury as coowner or beneficiary.

The owner or first-named coowner in whose name you buy the bond must be a resident of the United States, its territories and possessions, or the Commonwealth of Puerto Rico, or a U. S. citizen residing abroad. You can also buy bonds through a payroll savings plan if you are a civilian employee of the United States or member of its armed forces who has a Social Security Number or a Tax Identification Number, or a resident of Canada or Mexico who works in the United States and has a Social Security Number. You can name a minor as owner, coowner, or beneficiary.

Face Value

Series EE bonds cost half their face amount, and the market-based interest rates they earn determine when they reach face value. For example, a bond earning an average of 5% would reach face value in 14 1/2 years, while a bond earning an average of 6% would reach face value in 12 years. If the market-based rates are not sufficient for a bond to reach face value at 17 years Treasury will make a one-time adjustment to increase the redemption value to face value at that time.

30-Year Interest Earning Life

Series EE bonds earn interest for 30 years. The terms outlined in this pamphlet are in effect for the first 17 years. From 17 through 30 years from issue, bonds will earn interest based on the terms in effect at that time.

Buying Series EE Savings Bonds

You can buy Series EE bonds through any financial institution qualified as a savings bond issuing agent. The agent accepts the payment and the purchase order for the bonds and forwards orders to a Federal Reserve Bank, which inscribes and mails the bonds. Bonds are delivered within 15 business days. After normal business hours, agents may date transactions as of the next business day. This could change the issue date on bonds purchased at the end of the month.

Savings bonds can also be purchased through employer sponsored payroll savings plans.

Bonds As Gifts

When you buy savings bonds as gifts, be sure to have the correct Social Security Number and spelling of the recipient's name. If you don't know the owner's Social Security Number, use your own number. The Social Security Number is used only for record keeping purposes. When the bond is cashed, the paying agent must get the payee's number and use it for tax reporting purposes.

You can use the "Care of:" or "Mail to:" section on the bond purchase order if you wish to receive the gift bond so that you can present it yourself. When buying a bond as a gift, ask for a free gift certificate.

Savings Bonds Tax Benefits

The difference between the purchase price and the redemption value of a Series EE bond is interest. It is subject to Federal income tax, but not State or local income taxes.

You can generally elect to pay tax on interest annually as it accrues or defer the tax until the bond is cashed or reaches final maturity 30 years from its issue date. If you exchange eligible bonds or savings notes for Series HH bonds within one year after they reach final maturity, you can defer taxes on the accrued interest for an additional 20 years, the life of HH bonds, or until you cash them.

Tax Exclusion for Higher Education

The education bond program is aimed at helping lower and middle income Americans pay for post-secondary education. If all conditions are met, interest on Series EE bonds you purchase on or after January 1, 1990, is eligible for a special Federal income tax exclusion when you use the bond redemption proceeds for certain higher education expenses.

The bond owner may exclude intereston these bonds from income for Federal income tax purposes if the owner pays tuition and required fees at colleges, universities, and qualified technical schools during the year the bonds are redeemed. Costs of room, board and books do not qualify as educational expenses for this purpose. The exclusion applies to the post-secondary educational expenses of the bond owner, his or her spouse, and any legal dependent. Since income and other limitations apply, this feature will benefit some, but not all, bond owners. Married couples must file joint returns in order to be eligible for this program.

To qualify for this exclusion, the bonds must be issued in the name of a person who is 24 or older on the first day of the month in which the bonds were purchased. Also, bonds intended for the education of dependent children in the names of the taxpayer (or taxpayer and spouse) for whom the child is a dependent, as defined by the Internal Revenue Code. Bonds issued in the name of a child as owner or coowner are not eligible for this education tax exclusion, but a child may be named as the beneficiary.

You can exclude interest on bonds from income for Federal income tax purposes only if the qualified tuition and fees you paid during the year are equal to or greater than the redemption proceeds (principal and interest) of the bonds. If tuition and fees are less than the redemption proceeds for the year, the amount you can exclude from income is proportional to the share of the proceeds that you used for tuition and fees. For example, if you are eligible for the full income exclusion and if you redeemed $10,000 worth of bonds during the year but tuition and fees total only $8,000, you can exclude 80 percent of the interest income on the bonds from Federal income tax.

Income limits apply in the year of redemption of the bonds. For example, the income limits for 1997 were $76,250 - $106,250 for married couples filing joint returns and $50,850 - $65,850 for single filers. These limits are adjusted annually. Individuals earning up to and including the minimum threshold are eligible for the full interest exclusion and those earning over the maximum limit are not eligible for a tax exclusion. If your income is between these limits your interest exclusion is reduced proportionately. All amounts are modified adjusted gross income, which includes the interest earned on the bonds before exclusion.

You should keep complete records on 1) bonds, including serial numbers, face amounts, issue dates, redemption dates, the total proceeds received (principal and interest), and the interest received, and 2) expenses, including the name of the educational institution paid, amount of qualified expenses, and the date you paid those expenses.

Get IRS Publication 550, "Investment Income and Expenses "; Form 8815,Exclusion of Interest From Series EE U.S. Savings Bonds Issued After 1989 ; and IRS Form 8818, Optional Form to Record Redemption of Series EE U.S. Savings Bonds Issued After 1989 , for detailed information about the rules. These materials, and information on income eligibility, are available from Internal Revenue Service District Offices.

Tax Rules For Children And Dependents

Here's another way to use savings bonds to save for children's education expenses. Buy the bonds in the child's name alone or with a beneficiary (not coowner). Interest income can be included in income by the child each year as it accrues or deferred until the bonds are redeemed. In either case, the child will be subject to any Federal income tax on the interest.

To choose annual reporting, file a Federal income tax return in the child's name using the child's Social Security Number. Report the total accrued interest through December 31 on all bonds registered to the child. Note on the return the intention to report savings bonds interest annually. The election to report accrued interest income currently applies to all future years and can be changed back to deferred reporting only with the consent of the Internal Revenue Service.

No tax will be due unless the child has total income in a single year equal to the threshold that requires a return to be filed and no further returns need be filed until the child reaches that annual income level. For children under age 14, unearned income (including dividends and interest), over a specified amount will be taxed at the parent's rate. If the child is age 14 or older, income will be taxed at the child's rate.

With this approach, the tax liability on the bond interest is determined on an annual basis so that, when the bonds are redeemed, only the current year's accrual will be subject to Federal income tax. Make sure you keep complete records when using this system, because when the child cashes the bonds the agent will report all the interest earned to you and the IRS.

Get IRS Publication 929, "Tax Rules for Children and Dependents ," for details on this approach before you invest.

Series Bonds HH The Current — Income Option

Series HH bonds are current income bonds available in denominations of $500, $1,000, $5,000 and $10,000. Many people exchange the EE bonds they accumulated during their working years for HH bonds when they want the current income. Series HH bonds can also continue the tax deferral of interest on Series E and EE Bonds and U.S. Savings Notes. You can get Series HH bonds only in exchange for E and EE bonds and U.S. Savings Notes totaling at least $500 in current redemption value. You may add funds to the redemption value or accept the cash to round to the nearest multiple of $500. Do not redeem your EE bonds if you intend to exchange them. The bonds you exchange must be at least six months old and may not be more than one year beyond final maturity.

Series HH bonds pay interest semiannually at a fixed rate. Interest earned on HH bonds is exempt from State and local income taxes, but it is subject to annual Federal income tax reporting. Interest is paid by direct deposit to the owner's designated account at a financial institution. The rate is set for the first 10 years that you hold the bond and can change when the bond enters an extended maturity period of an additional 10 years. HH bonds are now paying 4 percent per annum and earn interest for a total of 20 years.

Changing Bond Registration

Savings bonds are not transferable and can be reissued to change ownership only under limited circumstances. For example, if one coowner dies, the other can name a new coowner or beneficiary. Also a single owner can add a coowner or a beneficiary.

An owner (or person entitled to act on behalf of the owner) can apply for reissue using forms available through agents or Federal Reserve Banks. Some reissues can result in immediate taxable consequences. It is important to understand tax consequences of such a change in ownership before requesting reissue.

Lost, Stolen or Destroyed Bonds

Bonds that are lost, stolen, mutilated, or destroyed can be replaced free of charge as long as the Bureau of the Public Debt can establish that the bonds are either still outstanding or have been erroneously paid.

To assure that bonds can be identified, keep records of your bond serial numbers, issue dates (month and year found in the upper right hand corner of a bond), registration (names and addresses), and the Social Security or Taxpayer Identification numbers in a safe place separate from the bonds. The Savings Bond Wizard makes this easy to do. Bond owners must apply for replacement to the Bureau of the Public Debt, Parkersburg, West Virginia 26106-1328. Many banks stock the replacement application form, PDF 1048.

Savings Bond Wizard

Get the Savings Bond Wizard, an easy-to-use program that will maintain an inventory of your bonds and tell you what they're worth. You can download the Savings Bond Wizard free from our Internet site.

More Information

Public Debt's Internet Address is:
http://www.savingsbonds.gov. You'll find just about all you'll ever need to know about savings bonds. You can e-mail us with questions and even order forms and publications at our site.

These materials are available from the Bureau of the Public Debt, Savings Bond Operations Office, Parkersburg, WV, 26106-1328:

• Tables of Redemption Values — PD 3600
• Comparison of Redemption Values As of December 31 — PD 3501 (Available in November)
• Semiannual Interest Rate Release
• Savings Bonds Earnings Report

Regulations governing the terms and conditions of savings bonds are available on-line or from the Bureau of the Public Debt.

• Public Debt Series 1-80 (Series EE Bonds Offering: 31 CFR Part 351)
• Public Debt Series 2-80 (Series HH Bonds Offering: 31 CFR Part 352)
• Public Debt Series 3-80 (Governing Regulations of EE/HH Bonds: 31 CFR Part 353)

For current recorded rate information, call 1-800-4US-BOND (1-800-487-2663).