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By Mike Singh
A savings bond is a treasury security for investors. In essence, investors
are loaning the government money. They are issued both as paper bonds and
electronic savings bonds. They cannot be traded but can be redeemed after only
one year. There are no dividends, per se, with a savings bond, as the interest
payments are simply added on to the value of the bond, but as tax-deferred
items, the interest doesn't have to be reported to the government until the
bonds are cashed.
The value of a savings bond varies with the kind of bond purchased - series
A, B, C, D, E, EE, F, G, H, HH, I, J and K. It also depends on when it is cashed
and what kind of interest it has been assigned. Since 1935, the treasury has
issued savings bonds in alphabetical progression. For example, series A bonds
were offered the first year, Series B bonds followed in 1936, Series C ran from
1937-1938, and Series D were issued from 1939-1941. Series E bonds, longest
running of the treasury savings bonds, ran from May 1941 until they were
discontinued in 1980.
Series EE bonds were brought out in 1980 to replace the series E. They can be
purchased at half or full face value. They come in amounts between $50-$10,000,
and carry a maturity date of between eight to thirty years. Those cashed in
before the fifth year are penalized three months' worth of interest. If EE bonds
are purchased through a bank or other financial institution, it is also known as
a Patriot Bond. There were more kinds of savings bonds, including the series F
and G (which were offered to all investors except banks), series H, HH, Series
I, J and K.
How do we calculate the value?
The value of a savings bond can be calculated by taking note of the face
value of the bond, the interest rate from the time the bond was issued until the
present time, and whether there are any penalties that have to be deducted. In
addition, it is important to note that a bond that is issued at half the face
value will be worth the face value at maturity, while a bond that is issued at
face value is worth twice this amount at the time of maturity. Savings Bonds can
also increase in value if they are redeemed past their maturity date, in which
case the interest must be calculated on a year-to-year basis.
On
http://www.bond-trading.org/ you will find articles on
municipal bond investments and
how do savings bonds work.
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