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Red, White & Blue – Savings
Bonds
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Savings Bonds
are non-marketable securities issued by
the U.S. Treasury Department, and are purchased or sold by agents authorized by
the Treasury Department. They earn interest monthly at a rate that changes twice
a year and the interest is also compounded twice a year. Savings bond interest
is exempt from all state and local income taxes. You receive the interest when
you redeem the bond.
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I Bonds are bought for full face value;
Series EE Savings Bonds are purchased at half of face value for an investment as
little as $25. You may buy up to $30,000 of paper I Bonds in your own name each
calendar year. You may buy up to $30,000 ($60,000 face value) of paper Series EE
Savings Bonds in your own name each calendar year.
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Major
Change
Series EE Savings Bonds issued on and after May 1, 2005 earn a fixed rate of interest, set at the time of purchase. The new rate
applies for the 30-year life of each bond, including a 10-year extended maturity period, unless a different rate or rate structure is announced for the extension period. Interest accrues monthly and is compounded semiannually. EE bonds with issue dates prior to May 1,
2005 continue to earn interest according to the terms in effect when they were issued.
A fixed rate is announced for new issues each May 1 and November 1. There
is no change for existing Savings Bonds, which
will continue as before with interest adjusted every six month.
The Department of the Treasury sets the fixed rate administratively. The rate
is 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. |
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Yield
New Series EE Savings Bonds earn 90% of the
average yields on five-year Treasury securities. The Treasury Department
announces new rates each May and November and the interest rate earned by the
bonds is updated every six months as a result. Series EE Savings Bonds offer a minimum
guaranteed return ensuring principal will at least double after 20 years, this works out to an
effective annual rate of 3.53%.
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Beginning December 11, 2001 Series EE savings bonds
were inscribed with the special legend "Patriot Bond."
Proceeds from the bonds are not earmarked to fight the war on terrorism
but are deposited in the general Treasury fund and spent like other
revenues.
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I Bonds combine a minimum rate with an
index-linked component. The fixed minimum rate remains the same for the life of
the bond while the index-linked side is adjusted every six months to track the
inflation rate as computed using the Consumer Price Index. The total or “composite”
rate on the I Bond is updated every six months to reflect the fixed rate in
effect at purchase and the inflation adjustment announced in May and November.
I Bonds purchased
after April 2008 earn a zero fixed rate of return above inflation. The zero fixed rate applies for the 30-year life of I Bonds purchased during
the preceding six-month period.
Tax Advantages
Interest compounding within an I Bond or
Series EE Savings Bond grows tax-deferred until it is redeemed, or until final
maturity is reached in 30 years, whichever comes first (You may also elect to
report savings bonds interest to the IRS and pay the applicable federal income
taxes annually).
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Tax-deferred does not mean tax-free, interest is taxed when
withdrawn (and you must pay taxes on the accrued interest at final maturity even
if you do not cash in the bond). If I Bond or
Series EE Savings Bond interest is used
to pay for college tuition and fees, and your household income meets the IRS
guideline, the bond interest may be excluded from federal income taxation (the
education tax exclusion is described in 26 U.S.C. 135).
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In the past you could exchange your Series EE Savings Bonds
for Series HH Savings Bonds and this allowed you to continue deferring
federal income taxes on the EE Bonds’ interest earnings for up to an
additional 20 years. However, this option went away after August 2004 when
the HH bonds were discontinued.
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Safety of Principal
You have to ask?
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Liquidity & Penalties
The money placed in savings bonds cannot
be withdrawn for 1 year. If redeemed within 5 years after purchase the penalty
for early withdrawal is equal to the last three months of earned interest.
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Savings Bonds have a
5-year penalty period and cannot be withdrawn for one year after purchase |
Older Bonds
If you own Series A, B, C or D Savings
Bonds they quit earning interest when Harry Truman was president and might be
worth more as a collectible than through redemption at face value (The Treasury
also issued Series F and G, J and K bonds, and Savings Notes. None of which
still earn interest).
Series E bonds were issued through 30
June 1980. Series E bonds originally issued through November 1965 stopped earning interest
November 2005 – 40 years later. All later E and EE
bonds have a 30 year maturity.
Series EE Bonds issued before May 1995
have higher minimum guaranteed rates than those issued now. The guaranteed minimum rates
range from 4% for bonds issued March 1993 - April 1995, to 7.5% for bonds issued
or extended from November 1982 - October 1986. This initial minimum rate applies
for a bond's original maturity period.
Savings Bond Rates
Bonds issued May 1997 and later earn interest at the savings bond rates
determined each May 1 and November 1. Rates apply to the first semiannual
earning period beginning on or after the effective date shown
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I Bonds |
Series
EE Bonds |
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Issue Date
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New Issue Yield
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Period Starting
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Period Yield
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New Bonds
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MAY 2008
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4.84%
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MAY
2008
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2.74%
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1.40%
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NOV 2007
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4.28%
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NOV
2007
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4.11%
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3.00%
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MAY 2007
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3.74%
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MAY
2007
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4.15%
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3.40%
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NOV 2006
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4.52%
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NOV
2006
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4.39%
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3.60%
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MAY
2006
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2.41%
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MAY
2006
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4.11%
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3.70%
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NOV 2005
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6.73%
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NOV
2005
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3.61%
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3.20%
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MAY 2005
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4.80%
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MAY 2005
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3.42%
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3.50%
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NOV 2004
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3.68%
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NOV 2004
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3.25%
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MAY 2004
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3.53%
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MAY 2004
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2.84%
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NOV 2003
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3.12%
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NOV 2003
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2.61%
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MAY 2003
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3.53%
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MAY 2003
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2.66%
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NOV 2002
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4.04%
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NOV 2002
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3.25%
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MAY 2002
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4.13%
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MAY 2002
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3.96%
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NOV 2001
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4.17%
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NOV 2001
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4.07%
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MAY 2001
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5.28%
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MAY 2001
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4.50%
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NOV 2000
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5.77%
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NOV 2000
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5.54%
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MAY 2000
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6.12%
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MAY 2000
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5.73%
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NOV 1999
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6.01%
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NOV 1999
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5.19%
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MAY 1999
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5.84%
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MAY 1999
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4.31%
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NOV 1998
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5.79%
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NOV 1998
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4.60%
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MAY 1998
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5.06%
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NOV 1997
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5.59%
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Source: U. S. Savings Bond
Earnings Report (Nov 2004 thru Oct 2007)
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Differences Between
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I Bonds
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Series EE
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Purchased at
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Face Value
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1/2 of Face Value
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Yield
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combine a minimum rate with an inflation-linked component
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Rate Locked In
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Minimum Guarantee
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Effective minimum yield of zero
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Minimum Guarantee of 3.53% effective yield if held 20 years
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Savings Bonds Are Available
Available for purchase at most banks and online at http://www.treasurydirect.gov/
Link Resource: http://www.publicdebt.treas.gov/sav/sav.htm
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Safe Money Places®