Of the dozens of investing options available, one of the best-known is also the one about which I receive the fewest questions.
So I was pleased recently to receive the following e-mail from a reader named Diana:
"My husband and I have a stack of $100 U.S. Savings Bonds that we purchased automatically every month for the past 25 or so years to help pay for our children's college educations. When I tried to cash a Series EE bond purchased in May of 1994, the bank teller said the bond was only worth about $83.
"My husband and I thought these bonds matured after 10 years. The teller could not give us any information about these bonds. I was wondering if you could?"
I'd be happy to try.
First, let's define what a U.S. Savings Bond is. The Web site InvestorWords.com says it is a "registered, non-callable, non-transferable bond issued by the U.S. government and backed by its full faith and credit. Savings bonds differ from other Treasury securities in several ways. U.S. Savings Bonds are non-marketable, meaning that they cannot be bought and sold after they are purchased from the government. ... Like all Treasury securities, they are exempt from state and local taxes, but in the specific case of U.S. Savings Bonds, all federal taxes may be deferred until the bond is redeemed. Therefore, even though interest will accrue, no taxes will be due until that money can be accessed."
Now to Diana's question. I called Steve Meyerhardt, spokesman for the U.S. Bureau of the Public Debt. He said the original maturity of bonds issued in 1994 is 18 years, so Diana's bonds haven't reached face value yet.
That's the short answer to your question, Diana. If you have other bonds you would like to check, Steve recommends that you visit the www.treasurydirect.gov Web site. Click on the "Individual/Personal" link, then the "Price your savings bonds" link, and finally the "Savings Bond Calculator" link. Follow the instructions, and you should be able to figure out a current value for the bonds you hold.
Steve says the government now sells both the EE and I savings bond series.
"The difference is that EE is a discount security purchased at half of the face value and has a fixed (interest) rate for its life, which is set at the time of purchase," Steve says. "A Series I bond is purchased at face value and earns interest on top of the purchase price as an accrual, so the longer you hold it, the more it's worth."
The I bond has a rate that's fixed for life, plus a rate based on inflation, adjusted every six months, he says.
"The I bond will earn you a real rate of return above inflation, whereas the EE bond is a fixed rate," Steve says. "Both bonds earn interest for a grand total of 30 years. The EE bond will reach face value in 20 years. The I bond is issued at face value, so it grows above that depending on the combined interest rate."
When I think of savings bonds, I think of grandparents buying them for their grandchildren as birthday presents, maybe because that's what my parents are doing now for my children.
Steve says small investors are indeed responsible for many purchases, but savings bond sales rise when the interest rate on the I bond looks better. So far in this fiscal year — from October 2005 through July 2006 — the government has sold about $7.9 billion worth of savings bonds, he says. That compares to $6.3 billion in sales during all of fiscal 2005 and $7.9 billion in fiscal 2004.
"A lot of people still buy savings bonds through their employer through a payroll deduction program, but that has gradually declined over the years," Steve says, adding that some purchases probably are still driven by patriotic feelings of the buyer.
"They are obligations of the federal government," he says. "But more than anything else, (sales) are driven by rates."
The treasurydirect.gov Web site has loads of other information if you're interested. And thanks again for the question, Diana!
If you have a financial query, please send it by e-mail to gkratz@desnews.com or by regular mail to the Deseret Morning News, P.O. Box 1257, Salt Lake City, UT 84110.
E-mail: gkratz@desnews.com