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    Savings Bonds: The Old Reliables


    For millions of Americans, U.S. Savings Bonds have been the vehicle of choice to reach their savings goals. They have lots of advantages that have helped to make them so popular.

    U.S. Savings Bonds are managed by the Bureau of the Public Debt, just like other Treasury securities. Savings bonds are known by their Series name. Currently, Series EE and Series HH bonds are available to the public.

    You can buy a savings bond at just about any bank, with as little as $25. Fill out the application, make your payment, and your bonds will be delivered to you by mail within 15 business days. Many companies offer a payroll savings plan to allow their employees to automatically withhold money from each paycheck that goes to purchase savings bonds. The purchase price is always half of the face value. That means that a $50 bond costs $25; a $10,000 bond costs $5,000. Besides $50 and $10,000, there are six other denominations of bonds available: $75, $100, $200, $500, $1,000, and $5,000.

    They are liquid investments, which means it's easy to cash in your savings bonds if you need the money. There's no penalty if you cash in your savings bonds anytime after the first six months that you've owned them, and you can cash them in at any bank.

    The principal and interest of savings bonds are guaranteed by the full faith and credit of the United States. If you ever lose a savings bond, it can be replaced. Interest on savings bonds is exempt from state and local income taxes. Federal income taxes are postponed until you cash your bond, or until it stops earning interest (30 years down the road).

    When a savings bond reaches maturity, it doesn't stop accumulating interest like most other bonds. It is automatically extended for ten years, and can be extended for additional periods following that. Interest continues to accrue on the bonds during these extensions.

    Another benefit of U.S. Savings Bonds is that the interest can be exempt from taxes if the bonds are used for college expenses for the bond owner, the owner's spouse, or a dependent. The bonds have to be purchased after December 31, 1989 in order to qualify, and registered in the name of a person who is 24 years of age or older on the first day of the month in which the bonds are issued, not -- and this is very important -- in the name of the future student.