Savings Bonds /

TreasuriesBy: Leah Lemay

What is a Savings Bond?

• Savings bonds are securities issued by the US Treasury Department. They provide funding dollars for the US Government. In return for using your money, the government pays you interest.

• non-negotiable government bond; cannot be bought and sold once the original purchase is made

http://banking.about.com/od/investments/a/SavingsBonds_3.htmhttp://www.wisegeek.com/topics/savings-bond.htm

Who can buy a Savings Bond?• Individuals, corporations, associations, public or private

organizations, and fiduciaries can own paper Savings Bonds.• You can own U.S. Savings Bonds if you have a Social Security

Number and you're a: – Resident of the United States. – Citizen of the United States living abroad (must have U.S.

address of record). – Civilian employee of the United States regardless of

residence.– Minor. Unlike other securities, minors may own U.S.

Savings Bonds.

http://www.savingsbonds.com/bond_basics/i-savings-bonds.cfm

What are the cost of Savings Bonds?

• Series I: Bonds are issued at face value; $100 buys a $100 Series I bond. Annual purchase limit per Social Security number is $30,000.

• Series EE: Bonds are issued at 50 percent of face value; $50 buys a $100 Series EE bond. Annual purchase limit per person is $15,000 issue price ($30,000 face value).

http://www.bankrate.com/finance/personal-finance/5-common-questions-about-savings-bonds.aspx

What types of Savings Bonds are there?

• I Bonds• EE Bonds

• H and HH Bonds were discontinued in 2004

http://www.fortcampbellmwr.com/acs/cao/information.htmlhttp://www.ehow.com/how_2075594_determine-maturity-us-savings-bonds.html

I Bonds

• I Savings Bond rates are announced every May 1st and November 1st. If that day falls on a non-working day, rates are announced on the next working day.

• I Bonds are a low-risk, liquid savings product. While you own them they earn interest and protect you from inflation.

• You may purchase I Bonds via TreasuryDirect, at most local financial institutions or through payroll deduction.

• As a TreasuryDirect account holder, you can purchase, manage, and redeem I Bonds directly from your Web browser.

http://www.fortcampbellmwr.com/acs/cao/information.html

EE Bonds• Series EE savings bonds are safe, low-risk savings products that pay interest based

on current market rates for up to 30 years• Series EE Savings Bonds were originally offered on July 1, 1980, to replace Series E

Savings Bonds, which were withdrawn from sale. EE Savings Bonds are reliable, low-risk government-backed savings products that you can use toward financing education, supplemental retirement income, birthday and graduation gifts, and other special events

• Series EE bond is what people think of when purchasing the bonds.• You may purchase EE Bonds via Treasury Direct or at almost any financial

institution or through your employer's payroll deduction plan, if available.• To obtain the best return, it is advisable to hold onto the bond for the full thirty

years of the maturation period.

http://www.bankrate.com/finance/personal-finance/5-common-questions-about-savings-bonds.aspxhttp://www.wisegeek.com/what-is-a-savings-bond.htmhttp://www.fortcampbellmwr.com/acs/cao/information.htmlhttp://www.savingsbonds.com/bond_basics/ee-savings-bonds.cfm

What are the differences between I Bonds and EE Bonds?

EE Bonds I BondsFeatures Issued at 50% of face value. (A $100 EE Bond costs $50.

Issued at face value. (A $100 I Bond costs $100.)

Offered in 8 denominations ($50, $75, $100, $200, $500, $1,000, $5,000, and $10,000)

Offered in 8 denominations ($50, $75, $100, $200, $500, $1,000, $5,000, and $10,000)

$30,000 issue price annual purchase limit per person.

$30,000 annual purchase limit per Social Security Number.

Interest Calculated as 90% of 6-month averages of 5-year Treasury Securities yields.

Calculated as an earning of a fixed rate of return and a semiannual inflation rate based on CPI-U.Rates announced every May 1 and November 1.

http://www.fortcampbellmwr.com/acs/cao/information.html

What does maturity mean?

• Length of time until the last interest payment and the principal of a bond is redeemed.

• The capital repayment date of a bond.• The date at which a bond matures, that is, the

date at which the issuer of the bond makes the final payment.

http://www.encyclo.co.uk/define/Maturity

When do I Bonds and EE Bonds mature?

• All Series I Savings Bonds have a final maturity (stop earning interest) of 30 years from the issue date on the bond. All I Savings Bonds post their final maturity interest on the first day of the final maturity month.

• Series EE bonds have many different rules depending on the time period in which they were purchased.

– Series EE Savings Bonds issue dated on or after May 1, 2005 will earn a fixed rate of interest for 20 years, at which time the bond should have reached it's face value.

– If the bond has not reached it's face value, the Treasury will make a one time adjustment up to the face value. These EE bonds will increase in value every month instead of every six months. Interest is compounded semiannually (twice a year). After the initial 20 yr period and additional 10 year extension and rate update will be initiated, for a total of 30 years of interest earning.

http://www.savingsbonds.com/bond_basics/ee-savings-bonds.cfm

When do you check when savings bonds mature and how much are they worth? –

EE Bonds

• Series EE Savings Bonds issue dated on or after May 1, 2005 will earn a fixed rate of interest for 20 years, at which time the bond should have reached it's face value. If the bond has not reached it's face value, the Treasury will make a one time adjustment up to the face value. These EE bonds will increase in value every month instead of every six months. Interest is compounded semiannually (twice a year). After the initial 20 yr period and additional 10 year extension and rate update will be initiated, for a total of 30 years of interest earning.

•Type in your information into the Savings Bond Calculator to find out how much they are worth before cashing them in.

http://www.savingsbonds.com/bond_basics/ee-savings-bonds.cfm

EE Bonds Continued

Issue Date Original Term01/80 - 10/80 11 years11/80 - 04/81 9 years05/81 - 10/82 8 years11/82 - 10/86 10 years11/86 - 02/93 12 years03/93 - 04/95 18 years05/95 - 05/03 17 years06/03 - present 20 yearshttp://www.savingsbonds.com/bond_basics/ee-savings-bonds.cfm

How do you check when savings bonds mature and how much are they worth? – I

Bonds

• All Series I Savings Bonds have a final maturity (stop earning interest) of 30 years from the issue date on the bond. All I Savings Bonds post their final maturity interest on the first day of the final maturity month.

http://www.savingsbonds.com/bond_basics/i-savings-bonds.cfm

I Bonds ContinuedThe I Bond Fixed Rate: The I Bond Inflation (variable) Rate:

Announced each May 1st and November 1st Announced each May 1st and November 1st

Applies to all bonds issued during the six months period beginning with the announcement date.

Based on changes in the Consumer Price Indes for all Urban Consumers (CPI-U).

Remains the same for the life of the bond. Changes every 6 month anniversary to the new variable rate set in the most recent month of May or November. The variable rate is then combined with the fixed rate to determine the earning rate of the bond for the next six months.

How the I Savings Bond Rate is Calculated:

Fixed rates and semiannual inflation rates are combined to determine composite earnings rates. An I bond's composite earnings rate changes every six months after its issue date. For example, the earnings rate for an I bond issued in March 2000 changes every March and September.Here's how the composite rate for I Savings Bonds issued Nov. 1st, 2010 thru April 30th, 2011 is set:Fixed Rate: 0.00%Semiannual inflation rate = 0.36%

Composite rate = [Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)]Composite rate = [0.0000 + (2 x 0.0036) + (0.0000 x 0.0036)]Composite rate = 0.74% http://www.savingsbonds.com/bond_basics/i-savings-bonds.cfm

I Bond Rates

http://www.savingsbonds.com/bond_basics/i-savings-bonds.cfm

What is the current rate on savings bonds?

U.S. Savings Bond Interest Rates starting Nov. 1st, 2010 thru April 30th, 2011:

Series EE Bonds : 0.60%

Series I Bonds : 0.74%

http://www.savingsbonds.com/bond_basics/i-savings-bonds.cfmhttp://www.savingsbonds.com/bond_basics/ee-savings-bonds.cfm

How do you go about getting a savings bond?

• Savings bonds are really easy to buy. Traditionally you would walk into almost any bank, credit union, or savings and loan to buy savings bonds. You can still do that at plenty of locations. However, it’s also easy to get savings bonds online.

http://banking.about.com/od/investments/a/SavingsBonds_3.htm

What are the rates and terms on savings bonds? – I Bonds

• I Bonds:– Rates & Terms

• I Bonds earn a guaranteed real rate of return. They are an accrual-type security. Interest is added to the bond monthly and is paid when you cash the bond.

• I Bonds are sold at face value; i.e., you pay $50 for a $50 bond.

http://www.fortcampbellmwr.com/acs/cao/information.html

What are the rates and terms on savings bonds? – EE Bonds

• EE Bonds • Series EE Bonds issue dated May 2005 and after will earn a

fixed rate of interest. • They are an accrual-type security, which means interest

is added to the bond monthly and paid when you cash in the bond.

• Paper bonds are sold at half the face value; i.e., you pay $25 for a $50 bond.

• Electronic bonds purchased via TreasuryDirect are sold at face value; i.e., you pay $25 for a $25 bond.

http://www.fortcampbellmwr.com/acs/cao/information.html

How do you redeem a savings bond?

• Most full-service banks and credit unions will cash your Series EE and Series I savings bonds.

• Series I bonds and EE bonds purchased after February 1, 2003 must be held for one year, as opposed to six months for bonds issued earlier, before cashing them in.

• I/EE Bonds: Redemption Information

• Minimum term of ownership: 1 year • Interest-earning period: 30 years • Early redemption penalties: o Before 5 years, forfeit 3 most recent

months'interest o After 5 years, no penalty

http://www.fortcampbellmwr.com/acs/cao/information.html

What are the tax considerations you should consider when dealing with savings bonds?

• I Bonds:– The interest earned on your savings bonds is subject to federal income tax, which can be deferred

until redemption, final maturity, or other taxable disposition, whichever occurs first. Savings bonds are subject to estate, inheritance, gift or other excise taxes, whether federal or state. I bonds are subject to all federal taxes imposed under the IRS code of 1986, as amended.

– You have the choice of reporting interest earned on savings bonds in several ways. Whenever you report savings bonds interest, it should be included with other interest income on your federal income tax return.

– Cash basis reporting - Federal tax is deferred until the year of final maturity, redemption, or other taxable disposition, whichever occurs first.

– Accural basis reporting - You report interest annually each year as it accrues. Once you start, you must continue to report interest earned annually for all savings bonds and notes you own and any you may acquire. This may be advantageous for I bonds in a child's name.

• EE Bonds:– Series EE Savings Bond interest earnings are reportable for Federal income tax purposes for the year

in which the bonds are redeemed. Alternatively, the bond owner can elect to report interest each year as it accrues; however, such an election must apply to all of the owner's accrual-type securities.

– IRS Publication 550 states if a Series EE Savings Bond has come to final maturity, the interest earned by that bond should be reported in the year it came to final maturity. When possible, a Federal Tax Return should be amended, within the 3-year statute of limitations on amendments to Federal Tax returns, to report such interest. If this cannot be done, the bond should be cashed in and the interest reported for the year it is cashed.

– Interest earned on your Series EE Savings Bonds is exempt from state and local taxes.

What is a treasury bond?

• Treasury bonds are issued in terms of 30 years and pay interest every six months until they mature. When a Treasury bond matures, you are paid its face value.

• The price and yield of a Treasury bond are determined at auction. The price may be greater than, less than, or equal to the face value of the bond.

http://www.treasurydirect.gov/indiv/research/indepth/tbonds/res_tbond.htm

What is a yield on a bond?• Yield is a figure that shows the return you get on a bond. • The simplest version of yield is calculated using the

following formula: yield = coupon amount/price.

• When you buy a bond at par, yield is equal to the interest rate. When the price changes, so does the yield.

• when price goes up, yield goes down and vice versa. • Technically, you'd say the bond's price and its yield are

inversely related.

http://www.investopedia.com/university/bonds/bonds3.asp

Two types of bids: T-BondsTwo types of bids are accepted:• noncompetitive bid:

– you agree to accept the interest rate determined at auction. – you are guaranteed to receive the bond you want, and in the full

amount you want. – To place a competitive bid, you must use a bank, broker, or dealer.

• competitive bid: – you specify the yield you are willing to accept. – Your bid may be:

• 1) accepted in the full amount you want if your bid is equal to or less than the yield determined at auction

• 2) accepted in less than the full amount you want if your bid is equal to the high yield

• 3) rejected if the yield you specify is higher than the yield set at auction.

– To place a noncompetitive bid, you may use TreasuryDirect, or a bank, broker, or dealer.

http://www.treasurydirect.gov/indiv/research/indepth/tbonds/res_tbond.htm

Can you get T-Bonds in paper form?

• Bonds exist in either of two formats: as paper certificates (these are older bonds) or as electronic entries in accounts.

• Today we issueTreasury bonds in electronic form, not paper.

• Paper bonds can be converted to electronic form

http://www.treasurydirect.gov/indiv/research/indepth/tbonds/res_tbond.htm

Facts about T-Bonds

• The yield on a bond is determined at auction. • Bonds are sold in increments of $100. The

minimum purchase is $100. • You can hold a Treasury bond until it matures

or sell it before it matures. • In a single auction, an investor can buy up to

$5 million in bonds by non-competitive bidding or up to 35% of the initial offering amount by competitive bidding.

http://www.treasurydirect.gov/indiv/research/indepth/tbonds/res_tbond.htm

What are treasury Inflation-Protected Securities?

• Acronym is “TIPS”• Treasury Inflation-Protected Securities, or

TIPS, provide protection against inflation. • TIPS increases with inflation and decreases

with deflation, as measured by the Consumer Price Index.

• When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm

What are T-Notes and how do they work?

• Also called Treasury Notes• Treasury notes, or T-notes, are issued in terms of 2, 3, 5, 7,

and 10 years, and pay interest every six months until they mature.

• The price of a note may be greater than, less than, or equal to the face value of the note

• When a note matures, you are paid its face value. • Notes are sold in TreasuryDirect and Legacy Treasury Direct,

and by banks, brokers, and dealers. • T-Notes are like T-Bonds

– Bid noncompetitively or competitively (same terms as T-Bonds)– Same facts as T-Bonds as well.

http://www.treasurydirect.gov/indiv/research/indepth/tnotes/res_tnote.htm

Added Information

The minimum age required to open a Primary TreasuryDirect account is 18 years. A parent, natural guardian, or person providing chief support may establish accounts for minor children under the age of 18

The bond will go into an extension period. The extension can last as long as the difference between your original issue date and 30 years from that issue date. During this time the bond will continue to earn interest - but not forever. After the 30 years years, the bond reaches final maturity and the interest stops.

Quiz!

__________ are securities issued by the US Treasury Department. They provide funding dollars for the US Government. In return for using your money, the government pays you interest.

Answer: Savings Bonds

What are the two types of Bonds?

I Bonds

EE Bonds

What is the current rate of series EE Bonds?

Answer: .60%

On series I Bonds?

Answer: .74%

Can you get T-Bonds in paper form?

No, Today we issue Treasury bonds in electronic form, not paper.

Series I bonds are issued at ___________ value

Answer: Full face value

Series EE Bonds are issued at _________ valueAnswer: 50% face value

The End!