United States Savings Bonds

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A $50 Series I United States Savings Bond certificate, which features Helen Keller
United States savings bonds are debt securities issued by the United
States Department of the Treasury to help pay for the U.S. government's
borrowing needs. U.S. savings bonds are considered one of the safest
investments because they are backed by the full faith and credit of the
United States government.[1] The savings bonds are nonmarketable
treasury securities issued to the public, which means they cannot be traded
on secondary markets or otherwise transferable. They are redeemable only
by the original purchaser, or a beneficiary in case of death.
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External linksHistory[edit]

Photo mural promoting the purchase of Defense Bonds, in the concourse of Grand
 Central Terminal (December 1941)

Post WWII $25 Series E US Savings Bond (1953) and strip of 10¢ US Savings
Stamps
On February 1, 1935, President Franklin D. Roosevelt signed legislation
that allowed the U.S. Department of the Treasury to sell a new type of
security, called the savings bond, to encourage saving during the Great
Depression. The first Series A savings bond was issued a month later, with
a face value of $25. They were marketed as a safe investment that was
accessible to everyone. Series B, C, and D bonds followed over the next
few years.
Series E bonds, referred to as Defense Bonds, were a major source of
financing in the period just before U.S. entry into World War II. On April 30,
1941, Roosevelt purchased the first Series E bond from Treasury Secretary
Henry Morgenthau Jr.; the next day, they were made available to the
public. After the attack on Pearl Harbor, Defense Bonds became known as
War Bonds. Stamps featuring a Minuteman statue design in denominations
of 10¢, 25¢, 50¢, $1, and $5 were also sold to be collected in booklets
which, when filled, could be exchanged to purchase interest-bearing Series
E bonds. All the revenue received from the bonds went directly to support
the war effort.
After the war ended, savings bonds became popular with families, with
purchasers waiting to redeem them so the bonds would grow in value. To
help sustain post-war sales, they were advertised on television, films, and
commercials. When John F. Kennedy was president, he encouraged
Americans to purchase them, which stimulated a large enrollment in
savings bonds. By 1976, President Ford helped celebrate the 35th
anniversary of the U.S. savings bond program.
In 1990, Congress created the Education Savings Bond program which
helped Americans finance a college education. A bond purchased on or
after January 1, 1990, is tax-free (subject to income limitations) if used to
pay tuition and fees at an eligible institution.
In 2002, the Treasury Department started changing the savings bond
program by lowering interest rates and closing its marketing offices.[2] As of
January 1, 2012, financial institutions no longer sell paper savings bonds.[3]
That year, the Department of the Treasury's Bureau of the Public Debt
made savings bonds available for purchasing and redeeming online. U.S.
savings bonds are now only sold in electronic form at a Department of the
Treasury website,[4] with the exception that paper Series I savings bonds
can be purchased with a portion of a federal income tax refund using form
8888.[5]
Types of bonds[edit]
There are two types of savings bonds offered by the Treasury, Series EE
and Series I.
Series EE[edit]
 $1,000 Series EE savings bond featuring Benjamin Franklin
Series EE bonds are guaranteed to double in value over the purchase
price when they mature 20 years from issuance, though they continue to
earn interest for a total of 30 years. Interest accrues monthly, and is
compounded semiannually, that is, becomes part of the principal for future
interest earning calculations. If a bond's compounded interest does not
meet the guaranteed doubling of the purchase price, Treasury will make a
one-time adjustment to the maturity value at 20 years, giving it an effective
rate of 3.5%. The bond will continue to earn the fixed rate for 10 more
years. All interest is paid when the holder cashes the bond.
For bonds issued before May 2005, the interest rate was an adjustable rate
recomputed every six months at 90% of the average five-year Treasury
yield for the preceding six months. Bonds issued in May 2005 or later pay a
fixed interest rate for the life of the bond.[6][7] Paper EE bonds, last sold in
2011, could be purchased for half their face value; for example, a $100
bond could be purchased for $50, but would only reach its full $100 value
at maturity.
Series I[edit]
Series I bonds have a variable yield based on inflation. The interest rate
consists of two components. The first is a fixed rate which will remain
constant over the life of the bond; the second component is a variable rate
adjusted every six months from the time the bond is purchased based on
the current inflation rate. The fixed rate is determined by the Treasury
Department; the variable component is based on the Consumer Price Index
for urban areas (CPI-U) for a six-month period ending one month prior to
the rate adjustment. New rates are published on May 1 and November 1 of
every year.[8][6] As an example, if someone purchases a bond in February,
the fixed portion of the rate will remain the same throughout the life of the
bond, but the inflation-indexed component will be based on the rate
published the previous November. In August, six months after the purchase
month, the inflation component will change to the rate that was published in
May. During times of deflation, the negative inflation-indexed portion can
drop the combined rate below the fixed portion, but the combined rate
cannot go below 0% and the bond can not lose value.[8] Like Series EE
bonds, interest accrues monthly and is compounded to the principal
semiannually. Besides being available for purchase online, taxpayers may
purchase Series I bonds using a portion of their tax refund via IRS Form
8888.[9]
Common terms[edit]
For both types, bonds are redeemable after 12 months, but there is a
penalty of three months' interest if they are redeemed before 5 years. Tax
on the interest can be deferred until the bond is redeemed.[10]
The annual purchase limit for electronic Series EE and Series I savings
bonds is $10,000 for each series. For paper Series I Savings Bonds
purchased through IRS tax refunds the purchase limit is $5,0