Savings-Bonds-Alert

We've moved! Check out our new blog at Savings-Bond-Advisor.com

2006-03-02T14:37:00.000-05:00

This blog has moved to http://www.savings-bond-advisor.com/. Meet you there! Tom Adams

Saving Bond investments double

2006-01-18T13:42:00.000-05:00

The current 6.73% rate on Series I bonds has created so much new interest in Savings Bonds that the rate of new investments has more than doubled. In December, new investments in Savings Bonds were $1.24 billion - an annual rate of $14.8 billion, compared to fiscal year (Oct-Sep) 2005's $6.3 billion in investments. Investments in both Series EE and Series I bonds have jumped. However, the share of new Savings Bond money that I bonds are receiving is very high. In December, 80.6% of new investments were in I bonds. This is down from November's 87.1%, which was the highest share of Savings Bond investments that I bonds have ever had. November's total investments in Savings Bonds were even higher than December's - an annual rate of $16.1 billion. Savings Bond Alert readers have access to an online graph showing monthly Savings Bond investments. Check your Book Notes for the link.

I Bonds hit 72.2% of sales in October

2005-11-21T11:02:00.000-05:00

Investments in Savings Bonds in October were $531.6 million. This is an annual investment rate of $6.38 billion, essentially unchanged from the 2005 fiscal year rate. However, Series I bonds made up 72.2% of the total October investments, which is the highest share they've had since October 2003, when the I bond share reached 81.7%. Given that EE rates were lowered on November 1 while the composite I bond rate was raised, look for the I bond share to reach its highest level ever during the next six months. Savings Bond Alert readers have access to an online updated monthly sales chart. Check your Book Notes for the link.

Treasury drops I bond fixed rate to 1.0%

2005-11-01T10:18:00.000-05:00

The U.S. Treasury slapped small investors with lower Series EE and I Bond rates today, even though interest rates in the open market have risen during the last six months. The Series I Bond fixed base-rate was set at 1.0%, down from the previous 1.2%. The EE bond rate was set at 3.20%, down from the previous 3.50%. Large investors who buy TIPS, the Treasury's marketable security comparable to I Bonds, have seen the 5-year yield rise in the last six months to 1.81% from 1.28%, an increase of 53 basis points. By dropping the I bond fixed base rate 20 basis points, the Treasury is forcing small investors to take a rate 0.73% less, in comparison to large investors, than what it offered six months ago. Large investors who buy 10-year Treasury Notes, which the Treasury "uses" to set the EE bond rate, have seen their yields rise in the last six months to 4.57% from 4.21%, an increase of 36 basis points. By dropping the EE bond rate 30 basis points, the Treasury is forcing small investors to take a rate 0.66% less, in comparison to large investors, than what it offered six months ago. Because of the jump in inflation during the last six months, the initial interest rate for Series I Savings Bonds purchased during the next six months will be 6.73%, up from the previous 4.80% rate. The new Series I rate is made up of the 1.0% fixed base rate and a 5.70% inflation component. The inflation component applies to all Series I Savings Bonds and is up from the previous level of 3.58%. Older Series I bonds will earn from 6.73% to 9.39%, depending on issue date, during their next six-month rate period. Older Series EE Savings Bonds issued between May 1997 and April 2005 will earn 3.61% during their next six-month rate period, up from the previous 3.42%. Rules for these bonds force the Treasury to set the rate at 90% of the 5-year Treasury Bill rate, which has also risen during the last six months. Series EE bonds issued prior to May 1997 pay a variety of rates. Also this month, the final issue of Series E bond that paid interest for 40 years reached final maturity and stopped paying interest. All Series E bonds issued before December 1975 are now stinker bonds and should be redeemed.

Fiscal Year 2005 Savings Bond sales down 12.5%

2005-10-27T14:45:00.000-04:00

Savings Bond investments in Fiscal Year 2005 (Oct 2004-Sep 2005) were $6,306 million, down 12.5% from the previous fiscal year and the lowest fiscal year total since four years ago in FY-2000. For the year, Series I Bonds accounted for 59.7% of the investment and Series EE bonds the remainder. The I Bond share was up slightly from last year's 58.3%, but well below the share of the previous two years, which peaked in FY-2003 at 67.6%. Savings Bond Alert readers can see an online updated monthly sales chart at Book Note 2-1.

Inflation jumps; new I bonds could exceed 7%

2005-10-14T10:02:00.000-04:00

The initial six-month rate for Series I Savings Bonds could exceed 7% after November 1. The inflation component of the I bond rate will be 5.69% for rate periods beginning from November to April. This represents the annualized change in the Consumer Price Index between March and September, which was announced this morning. Using the current I bond fixed base rate of 1.2% creates a composite I bond rate of 6.92%. If theTreasury increases the base rate for new I bonds to 1.3% or more, the rate on new I bonds will exceed 7%. Older I bonds will pay from 6.72% to 9.39% during their next six-month rate period. I bonds issued from May 2004 through April 2005 have the lowest base rate - 1.0% - and will earn the 6.72% rate. I bonds issued from May through October 2000 have the highest base rate - 3.6% - and will earn the 9.39% rate. Even after the early withdrawal penalty, I bonds purchased before the end of this month will earn a guaranteed one-year APY (yield after compounding) of 4.13%. This is a combination of six months at the current composite rate of 4.80% plus three months at 6.92% (the other three months of interest are lost to the penalty). This is well above the best current 1-year CD rates.

Next I bond rate could exceed 5%

2005-09-15T12:56:00.000-04:00

For the current six-month I bond rate-setting period, inflation is running at 3.85%, as compared to the 3.58% rate of the last rate-setting period, according to today's Consumer Price Index announcement. If this rate continues in the final month of the rate setting period, the I bond rate announced on November 1 will be over 5%, as compared to the current 4.80%. I'll publish more exact numbers here in mid-October. Meanwhile, total investments in Savings Bonds continue to be heavily weighted towards I bonds - 63% in August - but dwindling on a year-over-year basis. Total sales this fiscal year are on track to be the lowest in three and perhaps four years. Savings Bond Alert readers can see an online updated monthly sales chart at Book Note 2-1.

Series I at 67% of sales;inflation at 3.26% through July

2005-08-16T10:02:00.000-04:00

The Treasury reported this week that Series I Savings Bond investments in July totalled $297.1 million, about 67% of the month's total Savings Bond investments of $444.8 million. Series EE accounted for the rest of the sales, at about $147.6 million. And the Bureau of Labor Statistics has announced that inflation for the period from March through July ran at an annual rate of 3.26%, down slightly from the 3.58% September 04-March 05 rate. I bonds earn a combination of a fixed rate set when the bond is issued and the current inflation rate. For the first six months, I bonds purchased today pay 4.80%, based on a 1.2% fixed rate and the 3.58% Sep-Mar inflation rate. For the October to September fiscal year, the projection for total Savings Bond investments is currently below the previous year and significantly below the two years before that. These four years, however, are all higher than earlier years going back to when I bonds were introduced in 1999. Savings Bond Alert readers can see an online updated monthly sales chart at Book Note 2-1.

June sales - 69% Series I bonds

2005-07-18T10:34:00.000-04:00

Series I Savings Bond investments in June totalled $386.8 million, about 69% of the month's total Savings Bond investments of $559.2 million. Series EE accounted for the rest of the sales, at about $172.3 million. For the October to September fiscal year, the projection for total Savings Bond investments is currently slightly below the previous year and significantly below the two years before that. These four years, however, are all higher than earlier years going back to when I bonds were introduced in 1999. Savings Bond Alert readers can see an online updated monthly sales chart at Book Note 2-1.

Series I outsells Series EE by more than 2 to 1 in May

2005-06-23T16:57:00.000-04:00

Investors purchased $484.8 million of Series I Savings Bonds in May, compared to $216.3 million of Series EE. The Series I percentage of the total, at over 69%, hasn't been this high since November 2003. It appears that - as we predicted in our last sales report - Series I investors were waiting during April because they expected higher rates after the Treasury's May 1 rate announcement. And they got them. Total Savings Bond sales in May were $701.1 million. The only month this fiscal year (since November) with higher total sales was January. However, so far this fiscal year Savings Bonds have sold at an annual rate of $6.726 billion, which will create the lowest annual rate since 2001 if sales continue at this pace for the rest of the fiscal year. If you have a copy of my book, you can see an online updated monthly sales chart at Book Note 2-1.

Savings Bonds and IRAs

2005-06-06T09:31:00.000-04:00

Neil Downing at the Providence (RI) Journal has published the most extensive article I've ever seen on Savings Bonds and IRAs. The article discusses the situations in which putting a Savings Bond in an IRA is theoretically possible, why it's very difficult to find a financial institution willing to set this up for you, and why, in the end, putting a Savings Bond in an IRA is like wearing a belt and suspenders. Great article!

Series EE outsells Series I in April

2005-05-24T11:29:00.000-04:00

Investors put $240.3 million in Series EE bonds during April, according to data from the U.S. Treasury. Only $184.4 million - about 45% of total sales - was invested in Series I bonds. Usually Series I accounts for over half of each month's sales. The surge in Series EE sales was due to the Treasury's April announcement that Series EE bonds sold after May 1 would have fixed rates. Investors who liked the older adjustable-rate Series EE bonds moved up their purchases. Total Savings Bond sales in April, however, were the slowest they've been this fiscal year. Many I bond investors held off their purchases, expecting and getting higher rates in May.

Series I rate 4.80%New Series EE rate 3.50%

2005-05-02T10:27:00.000-04:00

The U.S. Treasury announced today that the initial interest rate for new Series I Savings Bonds purchased during the next six months will be 4.80%, up from the previous 3.67% rate. The new Series I rate is made up of a 1.20% fixed base rate and a 3.58% inflation component. The inflation component applies to all Series I Savings Bonds and is up from the previous level of 2.66%. The 1.20% fixed base rate for Series I bonds is up from the previous 1.00%. Older Series I bonds will earn at least 4.60% and up to 7.24%, depending on issue date, during their next six-month rate period. The new Series EE Savings Bonds purchased during the next six months will have a fixed rate of 3.50% for 20 years. Fixed rates are a new feature for Series EE bonds. After penalty for early withdrawal, the yield curve of the new fixed-rate Series EE Savings Bond is:

1 year yield: 2.64%
2 year yield: 3.09%
3 year yield: 3.23%
5+ year yield: 3.53%

Series EE Savings Bonds issued between May 1997 and April 2005 will earn 3.42% during their next six-month rate period. Older Series EE Bonds earn a variety of interest rates, depending on issue date.

Savings Bond with unknown owner

2005-04-22T11:13:00.000-04:00

I found a $25.00 savings bond in my deceased father's paperwork from 1962. It's not his name on the bond, and I have no idea whose name it is. I checked Google and name doesn't come up. Tom's response Unfortunately, you can't cash it - only the person on the bond or his/her heirs can do that. It's worth a little over $200. I'd send it to the unclaimed property department in my state. It's usually a branch of the Attorney General's office.

Fixed-rate EE Savings Bond features

2005-04-15T11:35:00.000-04:00

Do you see any value to the new fixed-rate EE bonds? It seems to me that I bonds are the only real choice now. Tom's response Much will depend on what kind of rate the Treasury actually gives to the new EEs. That said, one of the interesting things that the new EEs have is a fixed yield curve. That means you'll know in advance exactly what you'd earn at the 1, 2, 3, 4, and 5 year points. (You have to adjust the rate for the 3-month early withdrawal penalty.) For example, if they set the new EE rate at 3.5%, the yield curve would be:

1 yr - 2.63%
2 yr - 3.06%
3 yr - 3.21%
4 yr - 3.28%
5 yr - 3.50%

During the six-month period when these rates are available, they could become higher than equivalent short term T-Bill or CD rates, which would create an interesting situation. Another interesting feature is that with interest-rate-based investments like corporate and government bonds and bond mutual funds, the value of your investment goes down as interest rates go up. That's not going to happen with EE bonds, which gives them additional horsepower. If interest rates rise over a period of years, there's also nothing to keep you from redeeming any EE that's older than one year and buying a new one with a higher rate. Whether this will make sense will depend on how long you intend to keep the higher rate bond and whether you expect your tax rate to decrease during that period.

Savings Bonds and Qualified Tuition Plans (QTPs)

2005-04-12T11:00:00.000-04:00

I have a financial institution insisting that Savings Bonds can be "rolled over" into a Qualified Tuition Plan with no tax consequences. They say the Adjusted Gross Income limitations for excluding bond interest when used for educational purposes do not apply, however, they can't seem to show me anything in writing on this. Is there any authority for this position? Tom's response I suspect the financial professional you're dealing with is just mixed up. There are advantages to redeeming Savings Bonds and putting the money in a Qualified Tuition Plan, but getting out of the income limitation isn't one of them. The limitation you get out of is related to receiving more from cashing the bonds (including principal) than you spend on eligible education expenses. Basically, no matter how much you put in a QTP, it's all "eligible." My book discusses the advantages of moving bond money into a QTP. This works particularly well for people who currently have an income low enough to escape the income limitations but won't when their kids are in college. Here's my web page on the Savings Bond education deduction.

US savings rate and Savings Bonds

2005-04-11T15:17:00.000-04:00

Recently a group called the New America Foundation sponsored a discussion in Washington on ways to improve the low savings rate of Americans, according to the UPI article, Many ways to increase U.S. personal savings. One of the five solutions suggested was to revitalize U.S. Savings Bonds. Suggestions included:

adding a line to tax returns that would allow people to invest part of their refund in Savings Bonds
shortening the minimum holding period, which is currently one year
re-establish a marketing program for Savings Bonds

San Francisco Chronicle reports on Series EE fixed rates

2005-04-07T10:40:00.000-04:00

This week San Francisco Chronicle financial columnist Kathleen Pender published a very good article on the upcoming change to Series EE fixed-rate Savings Bonds, Savings Bond revamp. I don't say it's good just because she quoted me (smile), but I should point out that I may be a bit biased. She also quotes Dan Pederson of the Savings Bond Informer and actually highlights our differing views on the Series EE versus Series I question. Pederson has been quoted for years saying that over the long term, the adjustable Series EE bond rate has averaged about 2 per cent over the inflation rate. Consequently, he has said, when the Series I fixed rate was under 2 per cent, the adjustable-rate EE bonds were the better choice. When the I bond fixed rate was over 2 per cent, his analysis was that I bonds were preferable. I agree with Pederson that his 2 per cent over inflation analysis is correct, but I don't think it's detailed enough. As I explain in my book, a graph of inflation and interest rates over the last 50 years looks like a pyramid, with the peak in the early 80s. As inflation and interest rates climbed that peak, inflation led the way. During that part of the cycle, EE bonds paid only about one-third of a percent more than the inflation rate. As inflation and interest rates fell from the peak, inflation continued to lead the way. During that part of the cycle, EE bonds averaged about 3-1/3 per cent more than the inflation rate. So, yes, the average rate Series EE bonds would have paid over the whole 50 years is about 2 per cent more than inflation. (Note that the current rate-setting rules weren't actually in effect during that whole period, but we can still calculate what the rates would have been under the current rules for the entire period.) But when we tease apart what happens when we're in the part of the cycle where rates are headed up, it's clear that even I bonds with a measly 1 per cent fixed base rate will earn more than Series EE in that part of the cycle. So if you agree that our huge government and trading deficits imply that we've once again started up the high-inflation, high-interest part of the curve, Series I bonds are clearly the better choice. Although the Pederson-Adams controversy may seem like a moot point now that the Treasury has changed the rules for Series EE, I don't think it is. My point is that from an investor's point of view, Series I bonds were the better choice when interest rates were going up anyhow. So the change doesn't cost investors anything in that part of the curve. And after rates peak and begin heading down, the ability to lock in high rates with Series EE will give investors the opportunity to earn far more than 3-1/3 per cent more than inflation. Rather than seeing their rates adjust downward, as they would under current Series EE rules, the new rules will provide the ability to lock in those high rates for 30 years. Fixed rate Series EE bonds are great news for investors - just not right now. Keep buying those Series I bonds for now. The new Series EE bonds will be preferable some years down the road, when interest rates peak.

More on suit over stinker bonds

2005-04-06T15:29:00.000-04:00

Kathy Matheson of the Asbury Park Press has published an article, N.J. wants to generate interest, but critics see an ulterior motive, about the state treasurers who are suing the Treasury over stinker bonds - unredeemed Savings Bonds that have stopped earning interest. The headline of the article, written by an Asbury Park Press copy editor, is misleading. It should be, N.J. wants unclaimed Savings Bonds returned to owners, Treasury drags feet.

That's a lot of grandchildren!

2005-04-05T11:21:00.000-04:00

Reuter's report on the change to fixed rate Series EE Savings Bonds, US Treasury-EE savings bonds to bear fixed rate, begins, U.S. Series EE savings bonds, which many American children receive as gifts from their grandparents.... Reuter's reporter, like most financial professionals, just can't believe that an investment you don't have to pay a commission on can be any good, so the lead of the story has to marginalize Savings Bonds. However, this same article ends with investors bought $8 billion in savings bonds in fiscal 2004.... That's because those same grandparents, and many of us who are't there are yet, think Savings Bonds are an excellent commission-free choice for the low-risk foundation of our investment portfolios.

Treasury enhances Savings Bond product line

2005-04-04T13:45:00.000-04:00

The Treasury announced today that beginning May 1, new Series EE Savings Bonds will earn a fixed rate of interest. In making the change, the Treasury has drawn a clear distinction between its Series I and Series EE Savings Bond product lines. Previously, interest rates for the two product lines were set using methods that, while distinctly different, came up with about the same rate. Now new Series EE bonds will earn fixed rates, while Series I bonds will continue to earn rates that are adjusted every six months. Since their inception in January 1980, a primary feature of Series EE Savings Bonds has been that their rate adjusts every six months. The formula used to make this adjustment has changed over the years - currently it's 90% of the average five-year Treasury yield. A feature known as guaranteed rates, which was discontinued in May 1995, has tended to hide the semiannual adjustment feature from owners of older Savings Bonds. Most of the Savings Bonds issued in those high-rate years earn their fixed guaranteed rate rather than the changing market rate. After May 1, rates for new Series EE Savings Bonds will not be set by a formula, but will be set "administratively." The Treasury says the rate will be based on 10-year Treasury note yields and adjusted for features unique to Savings Bonds, such as the tax deferral feature and the option to redeem the Savings Bonds at any time after the initial holding period. The change to fixed rates takes away the primary competitive advantage of Series EE Savings Bonds when market rates are low. On the other hand, when interest rates are high the new fixed-rate feature will allow the public to lock in high rates with Savings Bonds for 30 years, which hasn't been possible before. In adjusting to this change, investors should remember that Series I bonds have been the better choice when rates are low, as they are now, anyhow. The change gives Savings Bonds two very different products - one, Series I, preferable when rates are low and the other, Series EE, preferable when rates are high. This is an improvement over the current situation, where there isn't a great deal of difference between the rates paid by new Series I and Series EE bonds. The change applies only to new Savings Bonds issued after May 1. If you want to run out and buy Series EE bonds before the rule changes, you can do so, but in today's low-rate environment, Series I bonds are your better choice.

Value of Defense Bond stamp albums

2005-04-01T09:04:00.000-05:00

I have found several Defense Bond stamp albums. Is there any value to these? Tom's response Ok, this one stumped me. But my sources at the Bureau of Public Debt tell me that these World War II era stamp albums are worth their face value and can be redeemed by sending them to: Bureau of the Public Debt 200 Third Street Parkersburg, VA 26106-1328 They can be redeemed for cash or used to the extent of their value in partial payment for a Savings Bond.

Savings Bond rate vs yield

2005-03-29T09:31:00.000-05:00

The Savings Bond Wizard shows that for an EE bond issued 09/1992, the rate is 4.00%, and the yield is 5.92%. For an I bond issued 01/2003 the rate is 4.28% and the yield is 3.51%. I don't understand why rate and yield are different, how they are computed. Why is the I bond yield less than rate and EE bond yield more than the rate? Tom's response First you have to realize that the interest rates paid by Savings Bonds can change every six months. The rate shown by the Wizard is what a bond is earning in the current six month rate period. The yield is how much it's earned, expressed as an annual interest rate, since the day you bought it. If interest rates go down over the life of a bond, as they have for your 92 EE bond, the lifetime yield will be higher than the current rate. If interest rates go up over the life of a bond, as they have for your 03 I bond, the current rate will be higher than the lifetime yield.

Redeem your stinkers

2005-03-28T11:37:00.000-05:00

According to an article in a recent issue of the Christian Science Monitor, the Treasury has a five-person team trying to track down the owners of Savings Bonds that have stopped earning interest. Reportedly, seven out of ten of the people contacted don't want to cash their bonds because they'll have to pay income tax on the interest. Instead, they opt to give the government an interest-free loan until they need the money, or until their heirs pay the tax, or until the bonds are forgotten and the government gets the entire value, not just the tax. From a financial standpoint, keeping these stinkers is an appalling decision. If you have Saving Bonds that have stopped paying interest, cash them in, pay your tax with some of the money, and use the rest to buy new bonds that pay interest. You'll end up with far more money than you will by holding on to these dead and rotting stinkers.

What is the maximum annual investment?

2005-03-25T17:29:00.000-05:00

Is the $30,000 annual limit on Savings Bond purchases related to the face value of the bonds or to the investment? In other words, is the annual limit in terms of Series EE face value $30,000 or $60,000? Tom's response The limit is how much you can invest. You can invest $30,000 a year in paper Series EE bonds, which will have a $60,000 face value. You can invest another $30,000 in paper Series I bonds as well as $30,000 each in electronic Series EE and Series I bonds, for a total of $120,000 a year.

Executor's options

2005-03-22T12:27:00.000-05:00

Can the executor of an estate choose to cash in and pay taxes on a partial amount of a bond inventory? Tom's response Yes, you can cash have the estate redeem some and pay the tax on those and let the rest pass on to co-owners or beneficiaries.

Treasury Direct phone number

2005-03-21T12:30:00.000-05:00

What is the telephone number for Treasury Direct? Tom's response Treasury Direct doesn't publish its phone number, but you can email them and ask them to call you. The email address is treasury.direct@bpd.treas.gov.

Tax-free redemptions using gifts to charities

2005-03-20T08:56:00.000-05:00

Is there any way to avoid paying taxes on Savings Bond interest - for example, signing them over to a relative, transferring them to a grandchild's education fund, or perhaps signing them over to a charity? Tom's response You can cash the bonds and give the amount of the interest income to a recognized charity. The charitable deduction, which you report on 1040 Schedule A will offset the interest income, which you report on 1040 Schedule B. However, if this pushes your income high enough to entangle you in the Alternative Minimum Tax (AMT), it may be less than 1 for 1. There are no other ways to avoid paying the tax.

Savings Bond fact sheet available

2005-03-15T11:25:00.000-05:00

Tell me about saving bonds. Tom's response Don't get me started. On my web site there's a new Savings Bond fact sheet. If you have more questions after reading that, let me know.

I won a Savings Bond! Now what?

2005-03-10T11:00:00.000-05:00

My daughter won a $100 savings bond in November 1996 through her school. The bond itself says interest ceases 30 years from issue date. This is the first savings bond I have had any dealings with. People have told me many things and I have had this in a fire box all these years. Do I need to do anything before the 30 year interest is up? Do we cash it in at that time? Tom's response The reason that Savings Bonds are frequently used as prizes is that they appear to be worth twice what they're actually worth. Your daughter's $100 Saving Bond cost the organization that gave it to her $50. Since 11/96 it's been earning interest on that $50. Although you can hold it for 30 years if you want, there's no reason to do so. Your daughter can cash it whenever she likes and enjoy the fruits of her winnings. If she's a saver, not a spender, the bond is currently earning more than the money would earn in a savings account. The interest rate changes every six months, so it's not possible to say what the bond will be worth after 30 years. However, it's guaranteed to be worth at least $100 (its face value) after 17 years, which would be November 2013. Bonds like these are often lost or forgotten. My advice to your daughter would be to take it to a bank, cash it in, and celebrate her victory from nine years ago.

Is face value the end of the line?

2005-03-08T12:33:00.000-05:00

Can a savings bond's value increase beyond its face value? Tom's response Yes they can. Savings Bonds held until they stop earning interest have been worth as much as 9 times their face value, although 3 to 5 times is more typical.

Unclaimed Savings Bond suit update

2005-03-04T15:19:00.000-05:00

We've been following the story of the state Treasurers who are suing the Treasury since last August. They want the Treasury to turn over Savings Bonds that have stopped earning interest to state unclaimed property departments, so the funds can be returned to their owners. The best article we've seen on the suit so far was published in the Asbury Park (NJ) Press on February 13 - N.J. wants to generate interest, but critics see an ulterior motive.

Roth IRAs and Savings Bonds

2005-03-03T11:04:00.000-05:00

Can I invest my Roth IRA funds in Savings Bonds? Tom's response The Treasury says you can put Savings Bonds in a traditional IRA but not a Roth IRA. Even then, however, it seems mostly theoretical rather than practical, because you also have to find an organization that will act as the IRA Trustee, and although there must be some, I've yet to identify one.

Can I buy a paper savings bond online?

2005-03-02T16:18:00.000-05:00

I personally prefer getting paper Bonds through the mail. I am not interested in electronic EE bonds. Can I get paper bond online? Tom's response There's a link on our page about purchasing savings bonds that will take you to the Treasury's list of banks that sell Savings Bonds online. The link is at the bottom of the second section. This is not a service the Treasury offers directly.

Undoing registrations to daughter

2005-03-01T16:27:00.000-05:00

I am 63 years old and have about $50,000 in EE bonds titled with my daughter's name (she is 30 years old and married) as owner and I am listed as the co-owner. Now that I'm retired and my daughter is on her own, I want to retitle the bonds in my name. What is the best way to handle this situation? Tom's response This is a complicated situation and you'll want to handle it carefully. The form to use for this is Public Debt Form 1938. The form has a section on it that explains in some detail the tax consequences of changing the registration. The section at first seens to be calling the first-named registrant the owner, the second the co-owner, and saying that you can't change the owner without creating a taxable event. However, it goes on to define the principal co-owner as the person who put up the money to buy the bonds and the section ends with the following in bold type: Unless we are otherwise informed, the first-named coowner will be considered the principal coowner for the purposes of this transaction. There's no place on the form itself to specify that you, who put up all the money for the bonds, are the principal co-owner, even though your name is listed second in the current registration. However, the quoted sentence makes it clear that you could attach a letter to the form explaining that you are the principal co-owner and you want to remove your daughter's name from the bonds. In your letter you should also say that if this will cause a taxable event you want the bonds returned to you without a registration change, just in case you get an agent who hasn't handled this type of transaction before.

Savings Bonds for grandchildren

2005-02-28T10:05:00.000-05:00

I am a grandmother interested in buying savings bonds for my grandchildren. I am clueless and am wondering if this would be a better way for me to save. Right now I have a savings account at my bank for them, but it does not draw a lot of interest. Tom's response Savings Bonds would earn more interest than a Savings Account. However, every day I receive emails from people wanting to know if there's any way to replace Savings Bonds they received as children that have been misplaced. There is, but it's complicated and the additional interest you'd earn probably isn't worth the risk of total loss. The big attraction of Savings Bonds as gifts and prizes is that paper Series EE bonds can be purchased for half their face value (you pay $25 for a bond with a $50 face value). The face value of a Savings Bond is nearly meaningless, since the bond is always worth what you paid for it plus the interest it has earned. However, gift and prize givers like that they can give something that appears to be worth twice what they actually spent for it. If you're sure that you or your own kids can keep track of the Savings Bonds until your grandchildren are ready to cash them, you can purchase Series EE bonds at most banks. Go early and take your grandchild's social security number with you. The bank will take your money and you'll receive the bond in the mail in about three weeks.

Confounding compounding calculations

2005-02-25T10:55:00.000-05:00

How is the interest on Savings Bonds compounded? I've tried to apply the interest rate to the values in TreasuryDirect, but I never get the same answer the Treasury does. Tom's response Since you're asking about TreasuryDirect, I'm going to answer your question for Savings Bonds issued since May 1997. Older bonds are even more complicated than this. There are three reasons it's difficult to figure out how the Treasury does the calculations. One is the early-withdrawal penalty. If you redeem your Savings Bonds before five years, you lose the most recent three months of interest. Everywhere the Treasury shows the value of a Savings Bond, they show it after deducting the penalty. This means there's never any confusion about the redemption value of a Savings Bond. However, interest rate calculations are done using the true value of the bond, which isn't shown anywhere. The second reason is that Savings Bond interest accrues (is added to the value of the bond for redemption calculations) monthly, but compounds (is added to the value of the bond for interest rate calculations) every six months. Again, the Treasury always shows the redemption value, which typically isn't the value the interest rate calculations use. The price we pay for reliable redemption values is constant interest-rate calculation confusion. The third reason is that Savings Bond interest rates change every six months. To do the calculations over a long time period, you have to calculate each six-month rate period separately. And you have to remember the rates are expressed as annual rates, but in each six-month period you earn just half the annual rate.

I versus EE: the difference in a nutshell

2005-02-24T09:35:00.000-05:00

I was wondering what the difference (in a nutshell) is between Series I and EE Savings Bonds. When I read about how the interest is accrued, I get lost along the way. :) Tom's response Have you ever noticed how prices tend to rise over time on the same stuff? When I was a dust-covered boy in Kansas, my doctor's office had a five-cent Coca-Cola machine. Even if you adjust for the fact that today's Coke machines give you cans twice as big as the 6-ounce bottles of the 1950s, today's price is much higher. That's called inflation. The government's Bureau of Labor Statistics collects the average prices people are paying every month and uses the data to produce the Consumer Price Index. Series I Bonds are designed to protect you from inflation. The interest rate paid by Series I bonds includes a component that's fixed for the life of the bond when you buy it, plus the rate of inflation as determined by the Consumer Price Index. The Treasury calculates a new interest rate for Series I bonds every six months. Series EE Bonds, on the other hand, are designed to adjust to the current level of interest rates. Every day the Treasury figures out what interest rate it would pay if it borrowed money for the next five years. Series EE bonds earn 90% of the six-month average of this five-year rate. While inflation rates and interest rates tend to be related, they are not locked together in any way. Inflation tends to move first and interest rates follow. There's detailed information about the conditions under which one series does better than the other in my book.

When can a grandchild cash Savings Bonds?

2005-02-23T10:34:00.000-05:00

I have been purchasing bonds for my grandchildren since they were born. The bonds are in their names and social security numbers. At what age can they start cashing them in? Tom's response The bonds can be redeemed as soon as the bonds are a year old. A child who is old enough to sign his or her name can go to a financial institution with an adult and sign the bonds. If a child isn't old enough to sign, his or her parents can sign for the child. If the child is under 14, the interest income has to be declared on the parent's return and taxed at the parent's tax rate. If older, the child can declare it on his or her own return.

Yield versus Interest Rate

2005-02-22T10:00:00.000-05:00

For the life of me, I can't understand what the difference is between a Savings Bond's yield and interest rate. Can you help? Tom's response The yield is what the bond has earned over its entire life expressed as an annual rate. The interest rate is what the bond is earning in its current six-month rate period. If the interest rate paid by a Savings Bond never changed, the yield and interest rate would be almost exactly the same (there would be a small difference caused by the interest compounding twice a year, while the yield is standardized to show the rate with once-a-year compounding). But Savings Bonds rates change every six months, which leads to the difference between yield and interest rate.

TreasuryDirect discussion on Morningstar.com

2005-02-21T12:58:00.000-05:00

Morningstar.com has a discussion area that includes a group called the Vanguard Diehards. Some of the members of this group use Treasury Direct to invest in Savings Bonds. Every once in awhile a discussion will break out about Treasury Direct service and policies. Yesterday a discussion began when a member reported Treasury Direct had deducted an amount from his bank account twice. To read all about it, click here: Morningstar Vanguard Diehards TreasuryDirect discussion. One member points out that you can confirm what happened after you enter a transaction. To do this, click on Current Holdings in the bar across the top of the screen, then select Pending Transactions in the paragraph of text under the page headline. You'll get a page asking whether you want to see your pending transactions in a list or a calendar. Select one and drill down to see the details on the transaction you just entered. If it's not right, there's a button you can use to delete it. Another member said that when he opened his TreasuryDirect account he was trying it out and mistakenly entered a $30,000 purchase. Again, if this happens to you, calmly go to Current Holdings and delete the scheduled transaction. Anything but calm, however, he emailed the help contact. The next morning his account was overdrawn and it took about a week to get it straightened out. However, he reports the "real people" he talked to were polite and responsive.

Should the heirs or the estate pay the tax?

2005-02-18T11:37:00.000-05:00

My brother and I inherited a large sum of E and EE bonds upon my mother's death. Does your book clearly explain if it would be more beneficial from a tax standpoint to have the estate redeem the bonds and pay the income taxes, or for me and my brother to redeem the bonds and pay the taxes? Tom's response Like any book, Savings Bond Alert covers issues in a general way and shows you how to do the analysis. But there's no single right answer to this question, so the book can't do the analysis for you. You'll have to look at your mother's marginal tax rate as compared to yours and your brother's. I suspect it will work best to have the estate cash some of the bonds, but pass most of them to you and your brother, which you eventually cash over several years. You and your brother are exactly the kind of people I wrote the book for. There are ways to reduce your taxes and get the most value out of the bonds. Other than the education deduction, you're in a position to be surprised by every tax issue the book covers: the deferred-tax time bomb, the double-taxation trap, and the state tax deduction. You could also be hurt by the hidden redemption penalty. I encourgage you to take a look at the book. Before you redeem the bonds you need to understand why they're not as frumpy an investment as they appear to be.

How much should I hold back for taxes?

2005-02-17T13:00:00.000-05:00

I have some Savings Bonds reaching final maturity. I'd like to redeem them and reinvest in new Savings Bonds. How much of the interest income should I hold back for taxes rather than reinvesting? Tom's response Good thinking! Many people forget to hold back part of the redemption proceeds for taxes. Then they don't have any cash to the pay the tax they owe. The percentage you'll need to hold back depends on your filing status and taxable income. Taxable income is less than your total income. It's your total income less deductions and exemptions. Look for a line on your tax return labeled Taxable Income (it's line 42 on the standard 1040 form). Look up your taxable income under the filing status column in the table for the year you cashed the bond on our federal income tax brackets page. The percentage you need to hold back is on the right. For other investments, you'd also need to add on a few percentage points for state income tax, but that's not necessary here because Savings Bond interest isn't taxable at the state level.

1099s for Series H and HH bonds

2005-02-16T21:38:00.000-05:00

My father-in-law converted some mature EE bonds to HH bonds in 2002. Shouldn't we get a 1099 with the interest information each year? If we do not get the 1099 who should we contact to get one? Tom's response Yes, you should get a 1099-INT, but only for the interest the HH bonds pay to your father-in-law twice a year. If you're not getting the 1099 automatically, the Treasury has a web site for HH bond issues where you can get one. There's a link to this web site from my page on the features of Series HH Savings Bonds.

Where do 1099-INT tax forms come from?

2005-02-15T11:15:00.000-05:00

Who sends the 1099's for interest received on savings bonds? Tom's response If you cashed your Savings Bonds at a bank, you should get the 1099 from the bank. Some banks give it to you when you cash the bond, some send it the following January. If you cashed your Savings Bonds by sending them to a Federal Reserve Bank, then they'll send you the 1099. If you don't have a 1099 by now for a Savings Bond you cashed in 2004, you should check with whoever cashed it for you.

Talk radio: A fountain of misinformation

2005-02-14T10:57:00.000-05:00

My brother-in-law just walked in and said that the following is all over the radio: If you own Savings Bonds, the state is taking the money away from you. What is he talking about? I checked several news web sites and couldn't find anything about a U.S. Savings Bond issue. Do you have any idea what he is referring to? Tom's response I'm stunned how this topic is playing out on talk radio. I think the good guys are the state attorney generals who are suing the Treasury. They want Savings Bonds that have stopped earning interest but have never been redeemed turned over to state unclaimed property departments so that the owners can be identified. The Treasury doesn't try to contact these people, instead it just silently keeps their money. If you have any idea why so many people are against this, please leave a commment by clicking on "comments" below. And Happy Valentine's Day....

Minor accounts in Treasury Direct

2005-02-11T14:37:00.000-05:00

How do I open a Treasury Direct account for my minor child? I want to put it in her name but keep the ability to manage it for her. Tom's response First you have to open your own Treasury Direct account. Then, from the Manage Direct page, you click on Establish a Minor Linked Account. You can set up your child's account on the page that appears. You'll need to know your child's birthday and social security number, as well as the child's bank account routing numbers if they are different from your own. Once the account is set up, you access it from your own Manage Direct page by clicking on Access my Linked Accounts. Once inside the linked account, you can make all the same kinds of transactions you can from own account until your child's 18th birthday. After that, all you can do is continue to purchase new Savings Bonds on your child's behalf. After your child is 18, she can open her own Treasury Direct account. At that point, in your account, go to the Manage Direct page and click De-Link a Linked Account. You will have to provide your child's new Treasury Direct account number. Completing the transaction transfers the Savings Bonds in the linked account to your child's new stand-alone account.

Tax-deferred rollovers of EE Savings Bonds

2005-02-10T11:48:00.000-05:00

Can EE savings bonds be converted to I bonds without having to pay taxes on the interest earned? Is there any way to rollover EE bonds into something else and not pay tax on the earnings of the EE bonds? Tom's response The only way to move your money between Series EE and Series I bonds is to redeem one and purchase the other. This always creates a taxable event. Now that HH bonds aren't available, there's no longer any way to continue tax-deferment after a Savings Bond reaches final maturity and stops paying interest. You know that saying about death and taxes? Meet taxes.

How long does it take for a savings bond to mature?

2005-02-09T11:32:00.000-05:00

How long does it take for a Patriot Bond to mature? How long does it take for a Series EE savings bond to mature? Tom's response A Patriot Bond and a Series EE bond are the same thing. If by mature you mean stop paying interest, the answer is 30 years. On the other hand, if by mature you mean reach face value, it depends on when the bond was issued. New ones issued today are guaranteed to reach face value in 20 years, but it could happen faster than that if interest rates go up.

Living Trust registrations in Treasury Direct

2005-02-08T10:05:00.000-05:00

Can you register TreasuryDirect's electronic Savings Bonds in the name of a living trust as you can with paper Savings Bonds? Tom's response Currently TreasuryDirect supports only registrations for individual owners who have social security numbers. These registrations can be in the name of a sole owner, an owner with a co-owner, or an owner with a beneficiary. However, many of the additional registration types that are allowed with paper Savings Bonds are envisioned for the future. But this enhancement isn't even on the "coming soon" list yet, so it's still a few years off.

Cost basis for inherited Savings Bonds

2005-02-07T15:03:00.000-05:00

We have inherited some savings bonds and have cashed them. How do we establish a cost basis at the point of death for calculating our taxable income of the interest? Tom's response Unless the person you inherited them from paid interest on them, you owe tax on the entire amount of interest. People are often surprised by this, because stocks received a stepped up basis when they are inherited. However, that rule applies to capital gains, not to interest income. So it doesn't apply to Savings Bonds. It's rare for people to declare Savings Bonds interest year by year as income, but it's allowed and it sometimes happens. You'd have to look through the decedant's old tax returns to see how much was declared. It's a bit less rare for the interest income up to the date of death to be paid on the decedant's final tax return. Executors have this option, but most pass Savings Bonds on to the heirs without calculating the income to the date of death and paying the tax. If the Executor did so in your case, you add a line to Schedule B that says "Interest on Savings Bonds on which tax has already been paid" and enter the Savings Bond interest income amount from the decedant's final tax return as a negative number. Keep a copy of the decedant's final tax return as proof in case you are audited.

Are Savings Bond payroll deductions pre-tax?

2005-02-04T09:04:00.000-05:00

If you purchase bonds through payroll deduction at work can the deductions be taken pre-tax? Tom's response Wouldn't it be nice if the amounts you invest in Savings Bonds through a payroll savings plan could be deducted from your income for tax purposes. As you know, other payroll deductions, such as retirement fund and traditional IRA investments, have this benefit. However, Savings Bonds don't. Savings Bond investments are always after-tax, even when purchased through payroll deduction. They do have the same tax-deferral feature as retirement funds and traditional IRAs, but that applies to the earnings, not the original investment.

1/98 EE still beats Vanguard 500 Index Fund

2005-02-03T11:17:00.000-05:00

On the home page of our site there's a graphic showing the relative performance of Series EE Savings Bonds and the popular Vanguard 500 Index fund. It's there to demonstrate that the value of stocks goes both up and down, while Savings Bonds only go up. However, these Savings Bonds are also actually out-performing the Vanguard fund! As of February 1, the 1/98 Series EE is worth $1.36 per dollar invested, while the Vanguard Fund, including both dividends and price change, is worth just $1.34. For Feburary the dividend yield of the Vanguard fund will be 1.59%, as compared to the Series EE rate of 3.25%. Based on dividends alone, Savings Bonds are clearly the better choice. Of course the other element, which Vanguard has and Savings Bond don't, is the level of prices for the 500 stocks that make up the index. Since stocks haven't done all that well in the seven year period the graph takes into account, Savings Bonds are still slightly ahead.

Should you change the registration if your name changes?

2005-02-02T11:26:00.000-05:00

I recently remarried and want to change my name on my Savings Bonds to my married name. What form do I need to do this? Tom's response When your name changes because of marriage, the Treasury suggests you leave your previous name on the bond; when you cash the bonds, simply sign your former name and your married name on the bonds. For example, "Mary L. Smith, changed by marriage to Mary L. Jones." However, the Treasury says that if a court is involved in your name change - through a divorce, for example - then you should have your named changed on your Savings Bonds, too. In any case, the forms for changing the registration on a Savings Bond do have a checkbox for changing your name because of marriage. For Series I use Public Debt Form 5387 and for Series EE use Public Debt Form 4000.

When do Savings Bond taxes begin?

2005-02-01T14:38:00.000-05:00

I have some Series EE savings bonds that have reached initial maturity (12 years) but not final maturity (30 years). Do I now have to start paying taxes on the interest earned by the bonds? Tom's response There are only two situations in which you are required to pay income tax on the interest earned by savings bonds. The first is when you redeem them. As for the second, when your bonds reach final maturity and stop paying interest, the tax comes due whether you redeem them or not. Of course there's no reason not to redeem them at that point, but many investors aren't paying attention and end up both losing interest and having to pay the IRS a penalty for not reporting the interest when it was due.

Denominations and Serial Numbers

2005-01-31T11:21:00.000-05:00

I have a list of my Savings Bonds that includes serial numbers, dates, and registrations, but I forgot to write down the denominations. Can I tell the denominations from the letter in the serial numbers? Tom's response My contacts at the Bureau of Public Debt tell me that the prefixes hold regardless of series and are:

L - $50
K - $75
C - $100
R - $200
D - $500
M - $1,000
V - $5,000
X - $10,000

Cashing a minor's savings bond

2005-01-28T10:40:00.000-05:00

The owner of a bond is currently a minor with a POD listed on the bond. Can the POD redeem the check since the owner is a minor? If the answer is no, what if the POD is the parent/legal quardian, then does the POD have rights to redeeming the bond? Tom's response You can cash your own child's bond because you are the child's parent, no matter what the POD says. Likewise, the person named in the POD normally can't cash a bond unless the owner has passed away. Here's some more info from the Treasury's web site.

Terminally ill owner of Savings Bonds

2005-01-27T10:06:00.000-05:00

My mother has terminal lung cancer and is too ill to take care of this, so I told her I would do it for her. She has a lot of series EE savings bonds. Some of the bonds are in her name along with my younger sister who died three years ago. I really don't know that much about bonds and what to do with them. Tom's response I'm sorry to hear about your mother. When someone dies, everything they own becomes a part of their "estate", which is legally split up in a process that's commonly referred to as "probate." If your mother has a will, it will determine how the estate is split. If she doesn't have a will, the estate is split according to state law. The person who oversee this process of splitting up the estate is called the Executor of the estate. The Executor typically has to hire a lawyer to file all the legal paperwork. Both will charge the estate fees for their work. These fees are often based on a percentage of the estate. In addition, it takes about six months or longer to complete this process. The heirs have no access to the money in the estate until the process is complete. However, Savings Bonds and mutual funds have a beneficiary designation that overrides this whole process. The designated beneficiaries have immediate access to the money, which will not have to go through the probate process. In your case, if you don't make any changes, your mother's bonds will go into her estate. When your sister died, the bonds with her name and your mother's became your mother's bonds. On the other hand, if your mother is willing and able, it would be her heirs advantage to have the registration on the savings bonds changed. She should remain the owner and make her heirs the beneficiaries on the bonds. Since each registration can have only two names, you may have to split the bonds up into groups - one for each heir. And to do that farily, you'll need to know how much the bonds are worth right now. Click here for details on changing the registration on the bonds, including the forms you'll need. You should also download and print out Public Debt Form 5188, Durable Power of Attorney for Securities and Savings Bonds Transactions. Have your mom sign it and have it notorized, which health care facilities should be able to help you with. This allows you to change the registration on the savings bonds without further signatures from your mother.

Savings Bond face value confusion

2005-01-26T11:26:00.000-05:00

Are Savings Bonds ever worth more than their face value? Tom's response Savings Bonds continue to earn interest after they reach face value. For example, the 1975 Series E bonds reaching final maturity this year are worth more than 5 times their face value.

Savings Bond interest rate calculations

2005-01-25T10:23:00.000-05:00

I used the Savings Bond Calculator to determine the interest earned by a $10,000 EE bond issued in May 2004. It was $60 which, in 8 months, is 1.8% interest, not the 3.25% listed for that bond. What is the explanation? Tom's response During its first six-month rate period, the annual rate for the 5/04 EE was 2.84%. During its second six-month rate period, the 5/04 EE will earn 3.25%. Moreover, the values shown for bonds less than five years old don't include the last three month's of interest, because of the early-redemption penalty. So instead of showing 8 months worth of interest, it shows 5 months at the 2.84% annual rate. For historical reasons, the Treasury first calculates the interest for a hypothetical $25 EE bond. If there was such a thing, you'd pay $12.50 for this bond, so the math looks like this: 12.50 * .0284 * (5/12) = .15 (value * rate * months/year) Your bond is 400 times larger than a $25 bond, so after the redemption penalty, you earned $60. (10000/25) * .15 = $60 The Savings Bond Calculator doesn't show the actual (as opposed to redemption) value of your Savings Bond. However, ongoing interest rate calculations are based on the actual value, not the redemption value, as you can see in this calculation: For the first six months you earned: 12.50 * .0284 * (6/12) = .18 (value * rate * months/year) For the next two months you earned: (12.50 + .18) * .0325 * (2/12) = .07 For a total of: .18 + .07 = .25, or $100

Previous values of Savings Bonds

2005-01-24T10:45:00.000-05:00

How do you find out how much the bonds were worth as of December 2002 and June 2004? Tom's response Either the Savings Bond Calculator or the Savings Bond Wizard can give you this information. Both of them have a pricing date field near the top. Just set the date in that field to the month you're curious about. The values shown will then be as of that pricing date.

1099-INT for Savings Bonds

2005-01-21T09:42:00.000-05:00

I cashed in some savings bonds last year at my bank. Who will send me the proper paperwork so I can add the interest to my federal income tax? Tom's response You should receive a 1099-INT tax form from the bank that cashed your bonds. Some banks give you this at the same time that they cash the bonds and others send them out in January. If you don't find or receive it by early February, ask your bank for a replacement copy.

Redeeming Series H/HH Savings Bonds

2005-01-19T15:12:00.000-05:00

I inherited some HH Bonds about three years ago. I receive interest every six months which would be this month and in June. I want to cash at least one of them in. Do I do it now? My bank will not cash it, so how do I proceed? Tom's response Yes, if you receive interest in January, now is the right time to redeem to avoid a hidden-interest rate penalty. Our site has a page on Redeeming H/HH bonds The page includes a link to a Direct Deposit Sign Up Form that you can print out. You will still have to take the HH bond to your bank to have them certify your signature on the back. Then you send the bond in yourself with the form and the Treasury will deposit the proceeds in your bank account. There'a also a link on the page that will give you the address of where to send the form.

Wrong social security number a problem?

2005-01-18T17:07:00.000-05:00

My son has a savings bond that was given to him as a gift when he was born. The person who gave him the bond used her social security number. Will my son have trouble cashing in the bond since the social security number used is not his? Tom's response It's actually quite common for gift bonds to have the social security number of the giver rather than the recipient. It won't cause your son any problems. When a savings bond is cashed, the 1099-INT tax form is always issued under the number of the person redeeming the bond. The social security number on the bond itself is used only for tracking purposes. For example, if you lost the bond and wanted to get it replaced, it would be helpful to know the actual SSN on the bond.

How to minimize savings bond taxes

2005-01-17T15:59:00.000-05:00

My father inherited series EE bonds and converted those to HH bonds and is trying to find a way to save from paying a ton of taxes when he cashes them in. What are his options to reduce the taxes? If nothing else he would like to give the tax money to the small town he lives in for improvements. Tom's response Although there aren't any ways to get out of paying income tax on these completely, there are ways to minimize the tax and to make sure he doesn't pay a hidden interest rate penalty when he cashes them. Here are some links you might want to look at:

If your father is willing to give the money away for local improvments, another thought would be to donate to a charitable organization in his community. The IRS allows deductions for charitable contributions, which could offset his interest income. If this seems interesting to you, however, I recommend you consult a tax specialist, rather than a savings bond specialist like me, to make sure this will work.

Death of paper Savings Bond imminent?

2005-01-14T11:00:00.000-05:00

It is my understanding that sometime this year the paper savings bond program will be done away with. Have you heard when this might happen? Tom's response This isn't true. What will happen this year is that people who have Treasury Direct accounts will be able to convert their paper bonds into electronic bonds. This will be voluntary. Although discontinuance of paper bonds was under discussion, the plans met a great deal of resistance and have been filed away.

How to transfer taxable interest to someone with a lower tax rate

2005-01-13T14:44:00.000-05:00

My mother purchased series EE bonds for my daughter on her birthdays and Christmas. Her intent was for them to be used for a college education, so she was advised to make them out in my name and social security number with my daughter as beneficiary. My salary is too high to claim the education tax deduction, so I'd like to have my daughter cash and pay taxes on the bonds. My local bank says I must cash the bonds. How can I get the taxes on my daughter's return instead of mine? Tom's response The advice your mother received was correct, but lots of people get trapped by the income limitations on the Savings Bond education deduction. Here's a link to my page on changing the registration on a savings bond. Go there and read up on how to change the registration on these bonds to make your daughter the co-owner rather than the beneficiary. You should leave yourself as owner to avoid creating a taxable event. When you receive the re-registered bonds with your daughter's name on them as co-owner, she'll be able to cash them herself. The 1099-INT tax form that reports the interest earned by the savings bonds to the IRS is always issued with the social security number of the person cashing the bonds, so your daughter can report the interest on her return. If you had purchased the bonds yourself, rather than receiving them from your mother, the IRS would expect you to pay the tax. The IRS says, If you used your funds to buy the bond, you must pay the tax on the interest. This is true even if you let the other co-owner redeem the bond and keep all the proceeds. However, since you didn't use your funds to buy the bonds, and since your mother's gift was always meant for your daughter, this rule doesn't apply. Go forth with a clean conscience and let your daughter pay the tax at her low rate.

Do savings bonds become worthless when the owner dies?

2005-01-13T14:28:00.000-05:00

My aunt recently presented me with several savings bonds she purchased about 25 years ago. They are made out to her or me, but her social security number is on them while mine is not. Somebody told me that without my social security number on the bonds, I can't redeem them. They said I have to get her to redeem them, or once she dies, they become totally worthless. Is this true? Tom's response Whoever you talked with was what I refer to as a fountain of misinformation. If the bonds say "OR" between your name and your aunt's name, rather than "POD" (payable on death), you are the co-owner and you can redeem them either now or after her death. A 1099-INT tax form will be issued to whoever redeems the bonds, reporting the interest earned to the IRS. This form is always issued in the social security number of the person cashing the bonds. The social security number that actually appears on the bonds is used mostly for tracking purposes, in case the bonds are lost. Savings bonds never become worthless. The value passes on to the heirs of the owner. For more information about the rules governing how savings bonds pass to heirs, see our page on inheriting savings bonds. --

Fixing misspelled name on savings bond

2005-01-12T10:43:00.000-05:00

I bought a savings bond for my granddaughter, who is 18 months old. The registration has an "s" at the end of her last name that should not be there. Will she have problems cashing the bond at a later date? Tom's response Generally a minor misspelling isn't a problem, particularly if the bond has her social security number on it. Often gift bonds have the SSN of the giver, however, rather than the receiver. If you'd be more comfortable having the spelling fixed, here are links to the forms to use:

For series I bonds, use Form PD F 5387 and check box 3f, correct error in registration
For all other series, use Form PD F 4000 and check box 2f, correct error in registration

Form 1040 and the education deduction

2005-01-11T10:36:00.000-05:00

When Series EE Bonds are redeemed for college how is it reported on IRS 1040? Tom's response

Use IRS Form 8815 to figure out how much your deduction is.

If you use Form 1040, enter the exclusion on line 3 of Schedule B.
If you use Form 1040A, enter the exclusion on line 2 of Schedule 1.

Attach the Form 8815 to your return. Click here for a link to this form, as well as lots of other information about the savings bond education deduction.

Purchasing paper savings bonds online

2005-01-10T10:14:00.000-05:00

Can I purchase paper I bonds online as I have done in the past? Tom's response A few banks offer this as part of their internet banking services, but the Treasury no longer does. Here's a list of banks that sell Savings Bonds through internet banking.

Putting savings bonds into a trust

2005-01-07T09:50:00.000-05:00

I'm looking for the form I need to put my savings bonds into a family trust. Tom's response What you're looking for is Public Debt Form 1851 Request to Reissue United States Savings Bonds to a Personal Trust. Read the instructions carefully. To avoid paying income tax on your savings bonds' accumulated interest, you have to certify that under the trust, you will be treated as the owner of the portion of the trust represented by the tax-deferred accumulated interest on the bonds being reissued.

Type of death certificate required

2005-01-06T15:35:00.000-05:00

My mother died and left her Series EE Bonds, which are registred in her name only, to her grandchildren. Do they each need an original of her death certificate to have the registration changed or would a copy of the original suffice? Tom's response If you send all the bonds and re-registration forms in together, you'd need just one copy of the death certificate. The copy should be certified to be true and correct by the issuing office or official. The office's or official's seal should be visible on the copy.

How to cash in a savings bond

2005-01-05T13:32:00.000-05:00

I'd like to cash in a savings bond. Can you you please tell me how to do so? Tom's response Most banks, savings and loans, and similar institutions will cash savings bonds for you. You might want to call ahead as a few no longer offer this service.

Declaring interest on unredeemed bonds

2005-01-04T11:37:00.000-05:00

I have referred to your website many times and I just ordered your book. My 17-year-old son has series EE bonds that now approach 10k in value. I want to have him file a tax return this year to pay the accrued interest now and then begin paying it annually before he is in a higher tax bracket. He's never filed a return before. How do I go about this? Tom's response First, even if you use a tax advisor for your own returns, if you son has no other income, you can do this one yourself, as it's not very complicated. Here's a link to a blank copies of IRS Form 1040 and Schedules A & B. Ignore Schedule A, but you'll need to use Schedule B if the interest income is over $1,500. Just open the forms, fill them out, and send them in. It will probably work best for you to continue to claim your son as a dependent on your return, which means he can't claim himself, so don't check box 6a on the 1040. The IRS says you don't need permission to change to reporting Savings Bond interest annually, but you'll pay tax on this interest each year from now on. If you ever decide to switch back, you need to file IRS Form 3115, but again permission to change in automatic. You'll need to know the total amount of interest earned by the bonds through Dec 04, which you can figure out from my book. There are two columns in the tables that help calculate interest, one is for 2004 only and one is for "issue date through Dec 2004". Use the second number and just multiply it by the face value of the bond. For example, for a Jan 1990 EE bond the interest number is 0.6224. If you have one of these with a face value of $100, it's earned $62.24 in interest. (Double check - in December its value was $112.24, minus the $50 you paid for it, leaves $62.24 interest.) Since Savings Bond interest isn't state-taxable, your son probably won't even meet the minimum requirement for filing a state tax form, but you might want to check this out. Most states now offer online forms you can fill out and submit pretty easily. On the state tax, you'd include the interest in his income, then deduct it in the adjustments section related to federal interest income.

Gift bonds for non-citizen godson

2004-12-30T17:11:00.000-05:00

I'd like to start buying savings bonds for my godson, who isn't a US citizen and doesn't have a social security number. What options are there to purchase savings bonds in his name on an annual basis? Tom's response You can buy a paper bond at a bank and register it in your godson's name. You can provide your own Social Security Number on gift bond transactions. In Treasury Direct, on the other hand, gift bond registrations must include the recipient's social security number. There are no citizenship limits to who can own Savings Bonds. However, there are extra steps for non-citizens trying to redeem savings bonds that complicate this gift. See section 1.3 on this page of the Treasury's savings bonds web site.

How long to reach face value

2004-12-29T13:35:00.000-05:00

How long does it take a savings bond to reach face value? Tom's response If you buy a paper Series EE Savings Bond today, it is guaranteed to reach face value in 20 years, however, it could get there before that if market rates are high enough. Electronic EE bonds and both paper and electronic I bonds are sold at face value. If you're talking about an EE bond you bought in the past, the time to reach face value depends on when you bought it.

Inherited Savings Bonds

2004-12-28T16:13:00.000-05:00

I am being appointed executor of my sister's estate. It consists of Series E and EE bonds. Some quit drawing interest ranging from 1996 to the present. Others will expire in 2005 and later. The estate is to be split 50/50 between my brother and me. We are both retired and in the 15% tax bracket. An accountant has recommended dividing the bonds and cashing a few at a time over future years. I would appreciate your suggestions. Tom's response If you and your brother are named on the bonds as beneficiaries or co-owners, the bonds won't have to be probated, which will simplify things for you as the executor. I agree with your accountant. Start cashing them in, starting with the ones that aren't paying interest anymore, in amounts that will keep you in the 15% bracket and that won't impact the amount of social security you get (if you have too much income they lower your social security benefit). You can use the Alert Recommendations in my book to figure out which ones to cash in first.

Savings Bonds and Social Security Numbers

2004-12-27T09:38:00.000-05:00

My daughter's godfather wants to start buying her savings bonds and has asked for her social security number in order to do this. We have already received two $25 saving bonds without having to use her social security number. Is this necessary? Tom's response When you buy a savings bonds as a gift, you can give either your own or the recipient's Social Security Number. The SSN isn't used for tax purposes - whoever cashes in the bond has to supply their SSN to the IRS. However, the SSN on the bond is used to trace the bond in case it's lost. I encourage people to use the recipient's SSN so that if the bond is ever lost, it can be found. No one ever thinks to look for lost bonds under the SSN of giver of a gift bond.

Penalties for not cashing mature savings bonds

2004-12-24T09:31:00.000-05:00

Is there a penalty incurred for not cashing in E bonds when they mature? Tom's response There are two penalties. Once a savings bond matures it no longer earns interest. So you're losing the money you'd get if you reinvested in a new savings bond that's earning interest. Also, the IRS considers the income tax to be due in the year the savings bond matures. If you don't cash it that year, you won't get a tax form to help you declare this. When you declare it later, the IRS can penalize you for not declaring it in the right year.

Savings Bonds as emergency funds

2004-12-23T09:19:00.000-05:00

I know that you can't cash in a series EE savings bond within a year, but what happens if it is a real financial emergency and the funds are needed? Tom's response If there's a major natural disaster like a hurricane, the Treasury will specifiy specific counties where residents can redeem Savings Bonds in less than a year. If yu subscribe to our email Savings Bond Alerts, we'll notify you when this happens. However, beyond that there are no exceptions. One strategy for dealing with this is to use Treasury Direct and put half your money in savings bonds and half in a zero-percent certificate. Enter a scheduled transaction to move the zero-percent certificate into a savings bond ten to twelve months from now. All of your money is now out of your spendable accounts, but if there's an emergency the first year, you can cash in the zero-percent certificate. If there's an emergency the second year, you can cash in the original savings bonds. After two years all of your money is available to you in an emergency.

Changing the SSN for HH bond interest

2004-12-22T09:44:00.000-05:00

I'm working with a client whose husband has died. They were co-owners of a number of HH bonds. She isn't ready to update the registrations on the bonds yet, but needs to change the Social Security Number that the interest is reported under from his number to hers. What form do we use for this? Tom's response If all you want to do is change the SSN that the HH bond interest payments are reported under, use a W-9. Click here for a page on the Treasury's web site about updating the SSN on HH bonds. That page includes both a link to the W-9 form and a link to the address to send it to.

Redemption value of Hbonds

2004-12-21T09:22:00.000-05:00

I have a $1,000 Series H U.S. Savings Bond issued in September 1955. How do I find out the value? All Savings Bond Calculators that I have tried do not have Series H as a selection. Tom's response Series H and HHbonds are worth their face value when redeemed, so your bond is worth $1,000. It stopped earning interest years and years ago - you should cash it in.

Which bonds to cash?

2004-12-20T15:44:00.000-05:00

I have to cash some savings bonds for the upcoming college semester. What is the best way to do this? Do I use the rate or the yield at the time I want to cash them? Tom's response In general, cash the ones with the lowest rate, which compares how your bonds will do in the future. The yield is the bond's lifetime yield, which tells you which ones did best for you in the past, but often the ones with strong past results will have weak future results because of the way rates are calculated on older bonds. If you have EE bonds that were issued since May 1997, try to get as many as possible to the five-year mark before you cash them. For I bonds, cash the ones with the lowest fixed-base rates.

Savings bond face value confusion

2004-12-17T14:37:00.000-05:00

Why would I buy an EE savings bond online if I pay dollar for dollar, rather than buy a paper bond at a bank and pay only half the dollar value? Tom's response The online and paper bonds are exactly the same in terms of the amount invested and the amount earned. True, the EE bond you get at the bank has a "face value" of twice what you paid for it, but it won't actually be worth twice what you paid for it for many years. And the online bond will be worth twice what you paid for it on the same day as the paper bond. So in terms of everything but that deceptive "face value" they are exactly the same.

When to buy savings bonds

2004-12-16T11:11:00.000-05:00

I would like to purchase I bonds, probably through Treasury Direct. Can I bonds be purchased at any time during the year? Tom's response Yes, both series I bonds and series EE bonds are available year round. They earn interest from the first day of the month no matter what day you invest, so there's a slight boost by buying them near the end of the month.

Savings Bonds and 529 Plans

2004-12-15T14:28:00.000-05:00

I am interested in converting my savings bonds to a 529 Plan. Please provide me with the appropriate information as to pros, cons and the proper procedure should I decide to move forward with this decision. Tom's response I'm sorry, but I'm an expert on Savings Bonds, not on 529 plans. All I can tell you is that if you otherwise qualify for the Savings Bond education deduction, you can take the deduction by redeeming your Savings Bonds and putting the money in a 529 plan. Click here for more information on the many limits of the savings bond education deduction and how to claim it on your tax return. That page includes a link to IRS Publication 970, which is a good place to start your education on 529 plans.

Finding out the giver of a Savings Bond

2004-12-14T13:06:00.000-05:00

I received a saving bond as a gift. Can I find out the person or persons who gave me the gift. How? Tom's response The Treasury doesn't have a system that has that information. Is the Social Security Number on the Savings Bond yours? If so, that limits the giver to someone who knows your SSN. If it's not yours, it's the SSN of the giver, which might give you something to go on. Ask around; someone will take credit.

Savings Bonds as gifts

2004-12-13T09:09:00.000-05:00

I'm thinking about giving a $100.00 bond as a wedding gift. What would be the best type to give? After five years, about how much would it be worth? Tom's response There are two types of savings bonds, Series EE and Series I. For the gift giver, the biggest difference is that Series EE bonds sell for half of face value and Series I bonds sell for full face value. What this means, for example, is that if you want to give $100, your gift can be an EE bond with a $200 face value or an I bond with a $100 face value. The rates on both types adjust every six months, so it's impossible to say for sure what they'll be worth in 5 years. But if the rates they're paying today just happened to be the average rate for the five-year period, after five years the EE bond would be worth $117.50 and the I bond would be worth $119.94. It takes about three weeks after you go to a back to buy the bond to receive the actual paper bond in the mail. It's best, but not required, that you put the recipient's social security number on the bond, rather than your own. The number is only used for tracking the bond, not for tax purposes, but if your recipents lose the bond and try to get it replaced, they will no doubt report its loss under their social security number, not yours. And if yours is on the bond, the Treasury may not be able to find a record of it.

Where does the money go?

2004-12-10T11:04:00.000-05:00

When I buy a savings bond, what does the government do with that money? Does it stay in a fund or get used to do government business? When I cash one, where does the money come from? Does the US have a reserve fund set aside to pay bonds and bond interest? Or are they paying out of current receipts? Tom's response To cover the amount the federal government is spending over and above what it takes in with taxes, the U.S. Treasury borrows money. Savings bonds are one of the ways the Treasury borrows, although savings bonds are a relatively minor source of funds compared to marketable Treasury securities. When you cash one in, the money comes from the Treasury. The Treasury's money comes from taxes and from borrowing. So it's a mix of those. There's no reserve fund, just as you don't have a reserve fund to pay back a car loan or home mortgage. If the government had the money for a reserve fund, it wouldn't need to borrow to begin with.

Possession is 0% of the law

2004-12-09T10:00:00.000-05:00

My great uncle had two $1,000 series E savings bonds. In July 1978 he gave me his WW II footlocker with its contents. He died in 1979 with no wife or children. His only relative was my grandmother. I found the bonds by accident three months ago in the footlocker. When I filled out the forms to cash them, the Treasury said I couldn't have the money and instead gave it (almost $15,000!) to my father and his brothers and sisters. Whatever happened to posession is 9/10's of the law? Tom's response "Possession is 9/10s of the law" isn't actually the law, particularly when it comes to savings bonds. In fact, for savings bonds, possession is meaningless. All that counts is the name on the bond. Since the person named on these bonds had died, his heirs become the owners.

Whose signature is needed on co-owner savings bonds?

2004-12-08T09:08:00.000-05:00

Over the years we have purchased Series E/EE bonds. The bonds have been purchased on a co-owner basis with our grandchildren as co-owners. If we redeem them will our minor grandchildren need to sign them as well? Tom's response Either the owner or co-owner of a savings bond can cash it without the signature of the other. You should have no problem cashing them without the signatures of your grandchildren.

Jan 93 HH Bonds

2004-12-07T15:18:00.000-05:00

What is the interest rate on Series HH bonds issued in January of 1993? Tom's response January 93 HH bonds earned 4% for 10 years. In January 2003 they entered what the Treasury calls a new maturity period. At that time the rate for HH bonds entering new maturity periods was 1.5%. That's what they'll earn until they stop paying any interest at all in Jan 2013. My book, Savings Bond Alert, has a chapter on why 1.5% HH bonds are a bad choice for almost everyone. The book explains how to check out whether you should exchange your 1.5% HH bonds for regular savings bonds, which are the better after-tax deal for most people.

Who bought this bond?

2004-12-06T11:46:00.000-05:00

My daughter just received a Series EE bond as a wedding gift. However, the purchaser did not include their name so we do not know who to thank. In addition, they had the bond made out incorrectly. How can we get the bond corrected and how can we find out who purchased it? Tom's response Unfortunately, the Treasury doesn't have a way to find out who purchased the savings bond. However, the Social Security Number on the bond might belong to the person who bought it. On the other hand, if the SSN belongs to one of the newlyweds, the purchaser would be someone who knew or recently asked for one of their SSNs. Click here for information on correcting savings bond registrations.

Savings Bond to charity

2004-12-03T13:38:00.000-05:00

I have several series EE savings bonds registered in my name purchased in the early 90's. I would like to reregister the bonds to a charitable organization. Can this be done and if so what do I need to do to make this happen? Tom's response The re-registration will cause a taxable event, which I suspect is something you're expecting to avoid. But if not, then click here and scroll about halfway down the page that appears for the form for changing the owner of a Savings Bond.

1099-INT or 1099-B?

2004-12-02T11:31:00.000-05:00

When a Series EE or Series I savings bond is redeemed, do you get a 1099-INT or is it a 1099-B as if it were a sale? How is the redemption reported on your tax return? Tom's response It's a 1099-INT. You report it on Schedule B as interest earned.

When's the best time to redeem Series H Savings Bonds

2004-12-01T16:29:00.000-05:00

Interest on my H-Bonds is payed in December and June. For this year, when can I cash in and receive full interest amount? Tom's response Cash them around the first day of the month in which they were issued or six months later. So if they were issued in December, cash them now. You'll also get the interest for the June-November period separately.

First President to buy a savings bond

2004-11-30T11:32:00.000-05:00

Who was the first US President to place an order for a Series E Bond? Tom's response According to "Pledging America", a book by Lawrence R. Samuel, President Franklin D Roosevelt was not only the first president to buy a Series E bond, he was also the first person to buy one (page 19). I hope I'm not doing your homework for you.

Questions about inherited savings bonds

2004-11-29T15:42:00.000-05:00

I am a POD benificery for some series EE savings bonds. I will have the bonds re-issued in my name. Can these paper bonds be converted to Treasury Direct? Can these bonds be reissued and changed from collecting interest within the bond, to paying out interest from this date forward? Can the full value of some of these bonds be reissued in my son's name without triggering taxation? Tom's response The ability to convert paper bonds to Treasury Direct will be announced early next year. You'll have to open a Treasury Direct account, obviously, to do this. I don't know yet if you'll be able to convert these directly or whether you'll have to have the registration changed first. They haven't announced the rules for things like that. Since the Treasury stopped issuing Series HH bonds last summer, there are no longer any savings bonds that pay out interest. However, once you get these in Treasury Direct you'll be able to make partial withdrawls, which accomplishes the same thing. Just withdraw the interest on a schedule of your choice. Having the bonds reissued in your son's name will trigger a taxable event. Adding your son as co-owner or beneficiary will not.

Dealing with the death of a child

2004-11-26T15:37:00.000-05:00

We recently lost our daughter in a automobile accident. She was 19 with a four-month old daughter that we are now raising. I had bought savings bonds for her education and would like to know how I can transfer the bonds into her daughter's name? What is the time frame to do this and what tax issues am I faced with? Most of the bonds have me as the co-owner but a few only have her name on them. I would very much appreciate some advice on what to do. Tom's response I can't imagine anything more painful than losing a child. I was at a play here in New York earlier this week in which one of the characters had lost a child many years earlier. The character quoted the following line from Shakespeare's King John: Grief fills the room up of my absent child, Lies in his bed, walks up and down with me, Puts on his pretty looks, repeats his words, Remembers me of all his gracious parts, Stuffs out his vacant garments with his form; Then, have I reason to be fond of grief? As for the bonds, to get the education deduction, they have to be in your name. If there is a co-owner, it has to be your spouse. On the ones where you are the co-owner, you should have the registration changed to your name. You can make your wife the co-owner or your granddaughter the beneficiary, but don't make your granddaughter the co-owner if you want to try for the education deduction. You can take the deduction on any dependent, so it doesn't matter that she's your granddaughter and not your daughter. However, there are significant limitations on this deduction in other areas. One of the best ways to use it is to fund a 529 college education plan. Click here for more information on the savings bond education deduction. As for the bonds that were in your daughter's name without a co-owner or beneficiary, they are now part of her estate. You will need to talk to a lawyer to figure out what your states's laws require in terms of the probate court process. Click here for information on the forms you need to get all of the savings bonds re-registered. If circumstances end up with some of the bonds registered in your granddaughter's name, she won't be able to take the education deduction. However, you can probably work with her after she's 14 years old to gradually cash them in at her tax rate, which should be minimal. Click here for more information about when to avoid tax-deferral.