Basics of savings bonds for high school students

1. savings
bonds
(about 62 slides)

2. First, some
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3. BONDS
• A bond is an I.O.U.
• Get it? ―I owe you‖
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4. A bond is an agreement that states that:
– one person (or company, or government)
– will pay someone else
– a certain amount of money
– on a certain date.
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5. Some bonds look like a check, don’t they?
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6. Some bonds look like a certificate, don’t they?
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7. Most bonds are not physical
paper like cash anymore.
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8. Bonds are just
electronic
records
nowadays (like
money in your
bank)
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9. You give the Verizon Corporation $1,000
and they give you their 1-year, 5%
corporate bond.
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10. • You give the Verizon Corporation $1,000
and they give you their 1-year, 5%
corporate bond.
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11. • You give the Verizon Corporation $1,000
and they give you their 1-year, 5%
corporate bond.
– 5% of $1000 is $50—you will earn $50 over
the next year.
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12. After six months, Verizon sends you $25
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13. After one year, Verizon sends you another
$25 plus your original $1000 back
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14. • A bond is like a loan.
• If you lend money to
someone (or a company
or a government) they
pay you the money back
later—and they pay you
interest too.
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15. “Issue” a Bond
The person (or
company or
government) who
promises to pay later
―issues‖ the bond.
Issued by the
Federal Government
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16. “Issue” a Bond
To ―issue‖ a bond
means to ―send it out‖
Issued by the
Federal Government
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17. “Issue” a Bond
• Typical ―issuers‖ are:
– the Federal Government
Washington, D.C.
USA 17

18. “Issue” a Bond
• Typical ―issuers‖ are:
– a State (like the state
of California)
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19. “Issue” a Bond
• Typical ―issuers‖ are:
– a County or a City
(like the City of Elk Grove)
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20. “Issue” a Bond
• Typical ―issuers‖ are:
– a Corporation (like Disney or Kellogg’s)
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21. “Issue” a Bond
Typical ―issuers‖ are:
Hospitals
Airports
School Districts
Sports Stadiums
Government Agencies
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22. Review:
typical bond issuers are
• The Federal Government
• State Governments
• Counties or Cities
• Corporations
• Nearly any large organization that needs money
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23. Why issue a bond?
• Issuers need money.
• Maybe they want to build a highway or a prison
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24. Why issue a bond?
• Issuers need money.
• Maybe they want to build a factory or buy a
fleet of new trucks.
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25. Why issue a bond?
• Issuers need money.
• Or maybe they want to
build a high-rise
apartment building.
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26. Why issue a bond?
• Issuers need money.
• Issuers sell bonds (borrow the money) and pay
the interest back with the profit they make later.
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27. Let’s start with
Savings Bonds
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28. Savings Bonds are issued by the
Federal Government
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29. These old
bonds are Savings bonds are sold in a ―Series‖
obsolete—
they are not
sold anymore:
Series A
Series B
Series C
Series D
Series E
Series F
Series G
Series H
Series HH
Series J
Series K
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30. Today, savings bonds are issued in
only two types:
Series I bonds
are nicknamed
―Inflation‖ bonds
Series EE bonds
are nicknamed
―Patriot‖ bonds
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31. The Federal
Buy a Savings Bond Government
lets any local
bank sell
savings
bonds for
them.
Just walk
right up
to the
teller
window. 31

32. Buy a Savings Bond
buy on-line
www.treasurydirect.gov
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33. At the teller window…
• You will make a withdrawal from your checking
or savings account (or give the teller cash)
• The teller will verify your name and address
• The teller will ask if you want anyone listed as a
co-owner or as a beneficiary.
• The teller will send an order to the Federal
government telling them to mail your savings
bond to your house.
• The teller will give you a copy of the bond order
and a receipt for the money you spent.
• The Federal government will mail you your
paper savings bond within 15 days. 33

34. No charge (no “load”)
• Banks cannot charge
you any fee for selling
or for cashing in
(―redeeming‖) a
savings bond.
• Savings bonds are
―no load‖
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35. Savings Bonds are safe
• You cannot lose
money when you buy
a savings bond.
• The U.S. Government
guarantees that you
will get your money
back with interest.
• ―full faith and credit‖
of the U.S.
Government.
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36. Savings Bonds are safe
• Registered in your name
• Replaced if lost, stolen,
or destroyed
• Only you can cash in
your savings bond
• Non-marketable (you
cannot sell a savings It’s got your name on it!
bond to anyone else, Your bond is ―registered‖
to you.
you can only cash it in)
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37. Savings Bonds are safe
• It makes no difference
who physically holds a
savings bond.
• The owner of the bond is
the person in whose
name it is registered, like
a car. Never buy a bond from
• You can’t cross out your an individual—you will
not be the owner.
name and put someone
else’s name on it.
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38. Earn interest every month
• Savings bonds earn
(―accrue‖) interest
every month.
• You accrue interest
every single month,
but you do not receive
any interest money
until you redeem
(―cash in‖) your bond.
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39. Redeeming Timeline
Buy 1 year 5 years 30 years
bond
Cannot Redeem with Redeem
Redeem 3-month interest without penalty
penalty
Exception: ―Disaster Relief‖
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40. Tax on Savings Bond interest
• Interest earned on a
Federal Savings Bond
is exempt from state
income tax.
• Earn interest every
month but don’t pay
Federal income tax
on that income until
bond is redeemed.
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41. Exception to having to pay
Federal Income Tax
Interest earned is
excluded from
Federal income tax, if
the bond interest is
used to finance
college education.
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42. U.S. Savings Bonds
• Savings Bonds today come in two types:
Series I
Series EE
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43. Let’s start with
Series EE
Savings Bonds
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44. Since 2001, paper EE bonds are
called ―Patriot Bonds‖
Since 2001
Before 2001,
just called
EE bonds
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45. Series EE paper Savings Bonds are
purchased for half of their face value
Pay only ½ price for Series EE
• You pay only $25 for a $50 EE savings bond
• You pay only $50 for a $100 EE savings bond
• You pay only $250 for a $500 EE savings bond
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46. Pay only price for Series EE
You pay only $50 for a paper $100 Series EE savings bond
=
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47. Paper EE bonds (from banks) are
sold in these denominations:
$50 Electronic EE bonds
$75 from
$100 treasurydirect.gov
$200 are sold in any amount
$500 (to the penny)
from $25 to $30,000 and
$1,000
are sold at face value
$5,000 (pay $50 for a $50
$10,000 electronic EE bond)
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48. Fixed Interest Rate
• Interest on Series EE
savings bonds is fixed Series EE bonds
for the life of the bond issued from
(30 years) Nov 1, 2010
• The interest rate for to Apr 30, 2011
new bonds is set every earn
May 1 and Nov 1.
0.60%
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49. Series EE accrued interest
Interest accrues (is added to the bond’s value
for redemption calculations) on
the first business day
of each month.
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50. S M T W T F S Buy near the
MARCH 28 1 2 3 4 5 6 end of the
7 8 9 10 11 12 13 month
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31 1 2 3 Interest day!
APRIL 4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24 Redeem near
25 26 27 28 29 30 1 the beginning of
the month
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51. S M T W T F S If you buy any day
during the month,
MARCH 28 1 2 3 4 5 6 you will get the same
7 8 9 10 11 12 13 monthly interest on
interest day
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31 1 2 3 Interest day!
APRIL 4 5 6 7 8 9 10
11 12 13 14 15 16 17
If you redeem any day
18 19 20 21 22 23 24 during the month, you
25 26 27 28 29 30 1 will get the same
interest.
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52. S M T W T F S Don’t wait until the
end of the month. It
MARCH 28 1 2 3 4 5 6 will take the Federal
7 8 9 10 11 12 13 Government a few
days to register your
14 15 16 17 18 19 20
bond.
21 22 23 24 25 26 27
28 29 30 31 1 2 3 Interest day!
APRIL 4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 1
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53. S M T W T F S Buy near the
MARCH 28 1 2 3 4 5 6 end of the
7 8 9 10 11 12 13 month
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31 1 2 3 Interest day!
APRIL 4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24 Redeem near
25 26 27 28 29 30 1 the beginning of
the month
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54. Series EE Compound interest
Interest compounds (is added to the bond’s
value for interest rate calculations) twice a
year—six months after the bond is issued and
every six months after that.
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55. Series I Savings Bonds
Series I savings bonds are exactly like Series EE
savings bonds with only two exceptions…
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56. Pay Full Face Value for Series I
You pay $100 for a $100 Series I savings bond
=
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57. Series I Savings Bond Interest
• The interest rate on an Series I savings bond is
not fixed like the Series EE savings bond is.
• The interest rate on an Series I savings bond is
made up of two parts:
– a fixed part that cannot change for the life of the bond
(30 years)
– a variable part tied to the current inflation rate
• If inflation goes up, the interest rate of the
variable part goes up too. Rates are adjusted
every May 1 and November 1. 59

58. Series I Savings Bond Interest
• Series I bonds sold between Nov 1, 2011
and Apr 30, 2011 earn 0.74%
Fixed part: 0%
Variable part: 0.74%
• Percentages are set every May 1 and Nov 1
• For new bonds, both parts are set
• For old bonds, only the variable part is set
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59. Everything else is the same
• No redemption in first year.
• 3-month interest penalty if redeemed
between 1 and 5 years.
• Stop earning interest after 30 years.
• Interest accrues on the first business day of
every month.
• Interest compounded every six months.
• No state income tax on interest earned
• No Federal income tax if used for college
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60. Learn all about savings bonds at:
www.treasurydirect.gov
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61. ---end of presentation---
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