Business, Legal & Accounting Glossary
A US savings bond is a bond sold by the United States Treasury to raise money for its operations. A US savings bond is non-transferable, meaning it cannot be sold on the market to other investors: the US savings bond can only be bought from, and sold to, the US Treasury. The US savings bond is issued in denominations of $50 to $10,000, and matures in 20 or 30 years, although the bond buyer can redeem the US savings bond earlier than that. The US savings bond comes in three forms: the I bond, an inflation-indexed US savings bond that is given a new interest rate semiannually; the EE bond, sold for half its face value and redeemed at full face value; and the HH bond, acquired only as an exchange of the EE bond. A US savings bond can be used as an investment program and also as part of a special savings program via payroll deductions.
Series EE and Series I savings bonds are issued by the US government. Electronic series EE bonds are purchased for face value through a treasury direct account, and paper series EE bonds are purchased for half their face value. These bonds pay a fixed rate of interest over a 30-year period and are guaranteed to double in value in 20 years. Prior to May 2005, series ee bonds earned variable interest rates that were set twice a year. Series I bonds are sold at face value and earn a guaranteed real rate of return that exceeds the rate of inflation during the bond’s term. Existing series hh bonds continue to pay interest until maturity, but no new series hh bonds are being issued. The primary distinction between savings bonds and US Treasury issues is that savings bonds have no secondary market because they cannot be traded among investors. You purchase them in your own name or as a gift for someone else, then return them to the government, usually through a bank or other financial intermediary. The interest on US savings bonds is tax-free in the United States and is tax-deferred in the federal government until the bonds are cashed in. At that point, if you use the bond proceeds to pay qualified higher education expenses and your adjusted gross income (AGI) falls within the range set by federal guidelines, the interest may be tax exempt.
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This glossary post was last updated: 11th August, 2022 | 0 Views.