Savings Bond Plan

What Is a Savings Bond Plan?

A savings bond plan is a work environment program that permits employees to purchase U.S. savings bonds through payroll deductions. Money is set beside every member's paycheck, and when enough money has accumulated, the company purchases a savings bond on the employee's behalf.

The plan may simply be accessible to certain employees, such as who's employers the company full time.

• A savings bond plan is a working environment program that permits employees to purchase U.S. savings bonds (Series EE and Series I) through payroll deductions.
• Series EE bonds are guaranteed to no less than double in value whenever saved for quite some time.
• Series I bonds are indexed to inflation; they earn a fixed rate of interest plus an inflation rate that is calculated semi-annually (using CPI-U).
• Interest on Series EE and I savings bonds is exempt from state and nearby income taxes.
• Bonds purchased might be registered to a single owner or multiple owners, or owners with a single beneficiary.

Understanding a Savings Bond Plan

In a savings bond plan, a set amount of a member's paycheck is set to the side every period until there is enough money for the company to purchase a savings bond on behalf of the employee. These bonds might be registered to a single owner, co-owners, or a single owner with a single beneficiary, who will receive the bond upon the bondholder's death.

There are two types of bonds accessible in most work environment savings bond plans, Series EE and Series I. The difference between the two is the manner by which they pay interest.

Series EE Bonds

Series EE bonds, which were first issued in 1980, are guaranteed to something like double in value over the initial term of the bond, commonly 20 years. Most Series EE bonds have a total interest-paying life that stretches out past the original maturity date, up to a long time from issuance. Following 30 years, the bonds never again earn interest.

By and large, these bonds could be purchased in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, or $10,000 and be bought for half of their face value; for instance, a $10,000 EE bond would have cost $5,000. In any case, Series EE bonds are not generally issued in paper form. Presently they must be bought electronically at their face value in penny increases starting at $25.

Series EE bonds are not generally sold in paper form and can now just be bought at face value through the Treasury Department's electronic system, TreasuryDirect.

Series I Bonds

Inflation-indexed Series I bonds were introduced in 1998, and are planned to give investors a return plus protection on their purchasing power. In paper format, they can be purchased in denominations of $50, $100, $200, $500, and $1,000 with a purchase price equal to the denomination. Electronic renditions can likewise be bought in penny increases past $25.

These bonds are purchased at face value and earn a fixed rate of return from the hour of the bond's purchase and an inflation rate that is calculated two times every year founded on the Consumer Price Index for All Urban Customers (CPI-U). Like EE bonds, I bonds can earn interest for up to 30 years.

Special Considerations

Interest on Series EE and Series I savings bonds is subject to federal taxes, as well as state and neighborhood estate, inheritance, gift, and other excise taxes. Be that as it may, the interest earned is exempt from state or neighborhood income taxes.

An investor can delay reporting the bond's accrued interest for federal income tax purposes until the bond is redeemed, moved to another person, or stops earning interest. At the point when EE and I bonds arrive at maturity, they are automatically redeemed and the interest earned is reported for federal income tax purposes.

There are two methods an investor might utilize to report interest for federal income tax purposes: cash and accrual. Using the cash basis method, federal tax is deferred until the extended time of the bond's last maturity, redemption, or other taxable disposition, whichever is prior. Under the accrual basis, interest is reported every year as it accumulates.