Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 5, 1993 TAG: 9307020366
SECTION: MONEY PAGE: A-8 EDITION: HOLIDAY
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Medium
U.S. Savings Bonds help taxpayers because the government saves $70 million in debt financing for every $1 billion invested. Last year, the more than $10 billion that people put into bonds saved taxpayers more than $700 million.
Larry Harding, Roanoke area coordinator for the program, said that represents 4 percent of the national debt.
But they also are a good idea for people seeking a place to keep their money safely. There are many reasons that 28 percent of American families own U.S. Savings Bonds for the cash portion of their investment portfolio:
The bonds are U.S. Treasury issues, backed by the full faith and credit of the federal government. That means they are the safest and most reliable of all investments.
They are affordable. U.S. Savings bonds can be purchased for as little as an outlay of $25 to buy a $50 bond.
They are easy to buy. Applications to purchase a bond from the Federal Reserve System are available at any bank, which accepts both the form and the payment. The bond itself comes through the mail, dated at the time of the application.
And 7.2 million Americans buy bonds the easiest way of all. They participate in payroll savings plans at work.
There are no fees or commissions for buying or selling the bonds.
They are simple to cash by going to the bank, but designed for the long haul.
People hold their bonds an average of 10 years and 6 months, which means they think of them as their long-term savings. The Treasury department said a private security, by contrast, is held for an average of 6 years and 1 month.
The bonds keep paying interest, even after they reach their original maturity date on which they have doubled in value.
Bonds purchased prior to November 1965 reach final maturity after 40 years. Those purchased since December 1965 will earn interest for 30 years.
That means only bonds purchased in 1953 or earlier must be redeemed because they are no longer earning interest. Taxes must also be paid unless owners take steps to postpone them.
The income is free from state taxes, and you can postpone the federal taxes on your capital gain. You can do this by rolling over the EE bonds into HH bonds, paying taxes only on the semi-annual interest. If you want monthly income, spread out the redemption of the EE bonds over six months. The HH bonds mature after 20 years.
All bonds purchased since Jan. 1, 1990, can be cashed tax-free if they are used by eligible persons (such as parents) to pay college tuition and fees. Income limitations apply to this privilege, however.
Bonds earn market rates if they are held for at least five years. The yield is 85 percent of the five-year rate on Treasury marketables, which is a composite of market rates on notes and bonds having five years remaining to maturity.
The rate changes each May 1 and Nov. 1. The current rate, effective through October, is 4.78 percent, which compares favorably with interest paid on bank certificates of deposit. It is being earned during this half-year by every bond that is paying interest.
In a change effective last March, the guaranteed minimum rate dropped from 6 percent to 4 percent. Bonds issued now cannot drop below that floor through their original maturity, currently 18 years. (Older bonds still earn no less than their own guaranteed minimums, at least through the original maturity date. Some bonds purchased in the mid-1980s came with a minimum of 7.5 percent.)
In the past, bonds also earned a sliding scale of interest if they were redeemed in less than five years. Now they earn 4 percent throughout that five-year period. After five years, the market rates become retroactive.
In a third change this year, interest is added to the value of an EE bond the first day of every month (after the first six months). This means the bonds can be redeemed at any time without the loss of interest.
by CNB