U.S. Savings Bond
What it is:
U.S. savings bonds are
How it works (Example):
U.S. savings bonds come in electronic form and can be purchased from most financial institutions or via the U.S. Treasury's TreasuryDirect website. U.S. citizens, official U.S. residents, and U.S. government employees (regardless of their citizenship status) can buy and own . Minors can also own savings bonds.
Paper face value, meaning that the investor pays $50 for a $100 and the is not worth its face value until it matures. Electronic are sold at face value, meaning the investor pays $50 for a $50 bond. Electronic EE can be purchased in any amount over $25. I are sold at face value (i.e., a $100 bond costs $100). Like EE Bonds, the is $25, and investors who purchase I electronically can buy in any amount above $25.(no longer sold, but still in circulation) were sold at 50% of
Investors can only purchase paper savings bonds in $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000 increments, and they may purchase up to $30,000 worth of savings bonds in one year.
When a savings matures, the investor receives the face value of the bond plus accrued interest. Savings bonds are not redeemable for the first 12 months they’re outstanding, and investors who redeem within the first five years forfeit the last three months of interest as a penalty.
Below are the basic components of a paper savings
Savings bonds are zero-coupon in that they earn interest monthly but do not pay that interest until they mature or are redeemed. The interest compounds semiannually.
EE Bonds issued after May 2005 carry a fixed interest rate equal to 90% of the average yield on five-year during the six months before the EE Bond’s .
I CPI for Urban Consumers (CPI-U). The rate changes twice a year and offers some protection against lost purchasing power. This structure is what primarily distinguishes I from EE Bonds. The Bureau of Public Debt announces the bond rates in May and November.pay a fixed rate plus an rate based on the
Interest from savings is exempt from state and local . It is subject to federal tax, however, but only in the year in which the bond matures or is redeemed. The holder may choose to pay each year on the interest earned in that year, but the disadvantage to this is that the must then pay on accrued interest from any other as well.
Savings taxes if the investor redeems savings and pays tuition for himself or a dependent in the same year. This exemption is called the Education Savings Program, and there are eligibility requirements, so be sure to consult a qualified tax professional before .interest can be exempt from federal
Why it Matters:
savings bonds especially advantageous for investors in high tax brackets or those with children heading to college. Savings bonds are very liquid in that they can be redeemed online or at nearly any financial institution (but that they have no secondary , meaning that they cannot be traded among individual investors).are simple, low-risk . The state and local , as well as the federal exemption for tuition payment, make
However, savings bonds rate of return and lack protection from due to their fixed interest rate ( that I do some protection, however). There is also no capital gains opportunity with savings bonds, nor do they provide current income unless the investor redeems the . Because savings bonds already a tax deferral, it is rarely advantageous to hold them in tax-deferred accounts.a very low