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The United States Savings Bond is the bond that most people own, and one which most people are familiar with. Almost anyone can own savings bonds, including minors, and they are backed by the full faith and credit of the United States government. If the bonds are lost, stolen, or damaged, the U.S. government will replace them.
You can buy the bonds without paying any commission or fee at virtually any bank or credit union, or you can buy them direct from the federal government at http://www.TreasuryDirect.gov. This website also allows you to calculate what the bonds are worth at any given time, and to buy them regularly through a payroll deduction plan, or by deducting it directly from your checking or savings account.
Bonds can be owned by a single individual, or by co-ownership, and a beneficiary can be designated. Corporations and other organizations can also own bonds—the key requirement is that the bondholder have a social security number or a tax identification number. Even minors with a social security number can own savings bonds.
The bonds cannot be traded or marketed in any way—they are nonmarketable securities. Both principal and interest are paid to the owner of the bond. They can be redeemed after owning them for 6 months according to a formula specified when the bond was issued. There may be a penalty of some interest if the bonds are redeemed within a relatively short time.
Savings bonds are accrual bonds, which pay interest by adding to the principal of the bond. The bond holder gets both principal and interest by redeeming the bonds. Savings bonds pay interest for up to 30 years, which is added at the end of each month, so if you buy a bond the last day of the month, you’ll get a whole month’s interest, and if you redeem the bond on the last day of the month, you’ll forfeit a month’s interest. So a good tip is to redeem them at the beginning of the month. No state or local taxes have to be paid on the interest earned.
One exclusive benefit of savings bonds is the Education Tax Exclusion, which allows bond holders to redeem the bond tax-free if the proceeds are used to pay college tuition. For tax-free treatment, the redeemed bonds must have been issued after 1989 to someone at least 24 years old, and who is responsible for the college tuition, and the college tuition must be paid in the same year that the bonds are redeemed. The money cannot be used for books, or for room and board.
There are now 2 major types of savings bonds: Series EE and I. Series HH/H has been discontinued, but some information is provided about them below.
EE Bonds are reliable, low-risk government-backed savings products that you can use toward financing education, supplemental retirement income, birthday and graduation gifts, and other special events. Series EE Bonds purchased on or after May 1, 2005, earn a fixed rate of return, letting you know what the bonds are worth at all times. See this press release for more information. EE Bonds purchased between May 1997 and April 30, 2005, are based on 5-year Treasury security yields and earn a variable market-based rate of return.
*E Bonds are the predecessor to EE Bonds and are no longer issued by the U.S. Treasury.
You can purchase, manage, and redeem electronic EE Bonds safely through a personal TreasuryDirect account.
A new program called SmartExchangeSM allows TreasuryDirect account owners to convert their Series E, EE and I paper savings bonds to electronic securities in a special Conversion Linked Account in their online account.
NOTE: Paper EE Bonds are still available for purchase through most local financial institutions or participating employers' payroll deduction plans.
Buying Electronic EE Bonds
Buying Paper EE Bonds
If you redeem EE/E Bonds in the first 5 years, you'll forfeit the 3 most-recent months' interest. If you redeem them after 5 years, you won't be penalized.
Individuals, corporations, associations, public or private organizations, and fiduciaries can own paper Series EE/E Bonds. At this time, only individuals can open a TreasuryDirect account and own electronic savings bonds.
You can also own U.S. Savings Bonds if you have a Social Security Number and you're a:
I Bonds were once sold and redeemed solely as a paper security, but now they're also available in electronic form. As a TreasuryDirect account holder, you can buy, manage, and redeem I Bonds online.
If you redeem I Bonds within the first 5 years, you'll forfeit the 3 most recent months' interest; after 5 years, you won't be penalized.
The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution.
Qualified educational expenses include:
The costs of books or room and board are not qualified expenses.
The amount of qualified expenses is reduced by the amount of any scholarships, fellowships, employer-provided educational assistance, and other forms of tuition reduction.
You must use both the principal and interest from the bonds to pay qualified expenses to exclude the interest from your gross income. If the amount of eligible bonds you've cashed during the year exceeds the amount of qualified educational expenses paid during the year, the amount of excludable interest is reduced pro rata.
Example: Assuming bond proceeds equal $10,000 ($8,000 principal and $2,000 interest) and the qualified educational expenses are $8,000, you could exclude 80 percent of the interest earned, which would equal $1,600. (.8 x 2000 = $1,600)
The full interest exclusion is only available to married couples filing joint returns and to single filers. Modified adjusted gross income includes the interest earned under a certain limit in each case. These income limits apply in the year you use bonds for educational purposes, not the year you buy the bonds. Exclusion benefits are phased out for joint or single filers with modified adjusted gross income that exceeds the limit. Full instructions and limits are outlined on IRS Form 8815.
For single taxpayers, the tax exclusion begins to be reduced with a $63,100 modified adjusted gross income and is eliminated for adjusted gross incomes of $78,100 and above. For married taxpayers filing jointly, the tax exclusion begins to be reduced with a $94,700 modified adjusted gross income and is eliminated for adjusted gross incomes of $124,700 and above. Married couples must file jointly to be eligible for the exclusion.
Aside from the Education Tax Exclusion, there is another way to use savings bonds to pay for your children's education expenses. Interest income on bonds purchased in a child's name alone or with a parent as beneficiary (not co-owner), can be included in the child's income each year as it accrues, or can be deferred until the bonds are redeemed. In either case, the child will be subject to any federal income tax on the interest.
Parents may file a federal income tax return in the child's name (the child will need to have a Social Security Number), reporting the total accrued interest on all bonds registered to the child. The intention to report savings bond interest annually, i.e., on an accrual basis, must be noted on the return.
The decision to report accrued interest income annually applies to all future years, and can be changed only by filing IRS Form 3115 with the IRS. Full details of this option and its requirements are outlined in IRS Publication 550, "Investment Income and Expenses."
No tax will be due unless the child has total income in a single year equal to the threshold amount that requires a return to be filed, and no further returns need to be filed until that annual income level has been reached. Starting with tax year 2006, for children under the age of 18, unearned income over a specified threshold amount for that age group will be taxed at the parent's rate. If the child is age 18 or older, income will be taxed at the child's rate.
With this approach, the tax liability on the bond interest is determined on an annual basis so that when the bonds are redeemed, only the current year's accrual will be subject to federal income tax. Make sure you keep complete records when using this system.
You can find more information about the education bond program in the following IRS publications:
Notice:As of September 1, 2004, investors are no longer able to reinvest HH/H bonds or exchange EE/E bonds for HH bonds.
Unlike EE bonds, HH bonds are current-income securities. You paid face value, and receive interest payments by direct deposit to your checking or savings account every 6 months until maturity or redemption.
Use HH bonds to:
HH/H Savings Bonds were only issued as paper bond certificates.
Notice: As of September 1, 2004, investors are no longer able to reinvest HH/H Bonds or exchange EE/E Bonds for HH Bonds.
Fill out a direct deposit sign-up form PD F 5396. Attach a voided check for the account information part of the form.
Many financial institutions offer their own direct deposit sign-up form or the SF 1199A. We'll accept those forms, or your written request if you provide the following: the name of the financial institution, type of account, the 9-digit bank routing number, and your account number.
HH/H Bond single owners and co-owners can access HH/H Internet Services to view account information, including a list of your HH/H Bonds and interest paid.
If you're missing a check issued for the redemption of HH/H bonds, contact the financial institution you submitted the transaction to for processing. They should track the payment to determine its status. If you're missing an interest check, take the following steps:
Mail to:
Bureau of the Public Debt
P.O. Box 2186
Parkersburg WV 26106-2186
Yes, you must report your interest payments on HH Bonds as interest income on your federal income tax return each year. This interest isn't subject to state or local income taxes. The U.S. Treasury issues an interest income statement (1099-INT) by January 31 of each year showing the interest you earned the previous year.
HH/H Bond owners and co-owners can access our free HH/H Internet Services to view their account information, including a list of HH/H Bonds and interest paid.
Interest on HH Bonds is subject to change at the start of extended maturity 10 years from issue.
HH/H Bonds earn interest every 6 months. The first payment is issued 6 months from the issue date shown on the bonds. Interest is reportable income for the year you earn it.
If you deferred paying federal income tax on interest earned on EE/E Bonds you exchanged for the HH/H Bonds you're redeeming, you will need to report this deferred interest for the year in which you redeem the HH/H Bonds. You will receive an IRS Form 1099-INT showing the deferred interest, which is reported to the IRS.
Simply fill out the form for "Lost, Stolen, or Destroyed U.S. Savings Bonds" (Form PD F 1048) and mail it to the address provided on the form.
If you don't have a list of your savings bonds' issue dates and serial numbers, describe the bonds as fully as possible and request a search of our records. We will replace your savings bonds free of charge, if we can establish that the bonds have not been redeemed. Send the information to:
Savings Bonds
Bureau of the Public Debt
P.O. Box 1328
Parkersburg, WV 26106-1328
TreasuryDirect offers a 21st century option for payroll savings, using a simple direct deposit (or payroll) deduction that is just like any other direct deposit deduction.
It's simple...
TreasuryDirect is an easy way for you to save on a regular basis by purchasing electronic Treasury securities. With TreasuryDirect:
In addition to direct deposit deduction from your pay, you can contribute to your C of I from pension funds, annuities, and even your checking or savings account. If you need to add to your C of I balance in order to purchase a savings bond, you can contribute directly to the C of I from your checking or savings account. If you choose to use one of these methods to contribute to your C of I, contact the relevant institution. Also, you can redeem securities in your TreasuryDirect account to the C of I instead of to your bank account.
Find more information about the payroll feature at TreasuryDirect Payroll Savings FAQs.
Starting January 1, 2008, the total amount of savings bonds will be limited to $20,000 per year—$5,000 each for the Series EE bonds and Series I bonds purchased online, and another $5,000 for each series in paper bonds bought at a bank. Previously, the limit was $120,000 per year.
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