| Sargent & Lundy Savings Investment Plan |
| CASHING IN THOSE SAVINGS BONDS |
| The following excerpts are from an article in the Tuesday,
June 16, 1998 "Chicago Tribune". The opinions of the author,
Pamela Yip, may or may not reflect those of the SIP Committee.
If you're like a lot of other people, you've been so preoccupied lately by the roaring stock market that you've ignored some of your other assets. U.S. savings bonds are a good example. If you've got a whole bunch sitting in your safe-deposit box, it may be time to think about cashing some in. You have to hold a savings bond for only six months before you can redeem it. But it's wise to do your evaluation when a financial emergency doesn't have you backed up against the wall and may force you to act. "If you randomly redeem your bonds, it is unlikely that you will maximize your savings bonds' potential," said Daniel J. Pederson, author of "U.S. Savings Bonds: A Comprehensive Guide for Bond owners and Financial Professionals." Pederson, a former supervisor of the Savings Bond division of the Federal Reserve Bank's Chicago-Detroit branch, said to consider these factors when pruning your savings bonds: How much interest are you getting on each bond? What interest rate applies to each bond? Cash out the ones that aren't earning interest anymore or that are earning interest of 4.5 percent or less. Savings bonds earn interest for different lengths of time, depending on the series of the bond (Series EE or HH, for example) and, in some cases, when the bond was issued. Series EE bonds, the most common type of savings bonds, earn interest for 30 years. When do each of your bonds increase in value? It depends on when the bonds were issued. Series EE bonds with May 1997 and later issue dates increase in value each month, but the bond's interest rate is compounded semiannually. Don't be too quick to cash such a bond because if you cash it before it's five years old, you give up the last three months worth of interest. For most bonds issued before May 1, 1997, interest is added every six months. Cash a bond in a month in which interest is added to its value. For example, a bond with an issue date of February 1990 increases in value every Aug. 1 and Feb. 1. If you cash this bond in July, you'll get the same amount as if you had cashed it the prior February. However, if you wait until Aug. 1 to cash the bond, you'll get another six months of interest. You want to cash in the bonds that are giving you the lowest amount of interest. For example, if your bond is due to increase in value in July and you redeem it July 1, you'll be credited with the July increase. If you hold that same bond until July 30, you'll get the same amount as you would have on July 1. As you cash in your savings bonds, look for ways to spend the money to lessen the tax bite. You must report on your tax return the interest (the difference between the bond's purchase price and redemption value) that's accumulated when you cash your bond. Your financial institution will send you a 1099 tax form listing the amount of interest you got on your bond. You can avoid this tax if you use the money to pay for college for yourself, your child or your spouse. However, you must meet certain income requirements and you must have purchased your bonds Jan. 1, 1990, or after. The bonds also must be in the name of you, the parent. Another way you may avoid paying tax on your savings bond is to convert your EE bonds to HH bonds. Series HH bonds differ from Series EE bonds in that HH bonds pay interest every six months. The redemption value of the HH bonds stays constant at exactly the amount you invested. When you convert EE bonds to HH bonds, you defer paying tax on the interest that's accumulated on the EE bonds. However, you still must report the interest paid to you on HH bonds. This isn't a good time to convert to HH bonds, Pederson said. "HH bonds are paying only 4 percent," he said. "As long as the guaranteed rate on HH bonds is 4 percent and your E or EE bonds still have interest-earning life left, do not exchange for HH bonds." Information on U.S. Savings Bonds may be found at the following site on the Internet: The Federal Bank of New York (www.ny.frb.org) Savings Bond calculator determines redemption value and earned interest of your bond. If you don't have a computer, you may call the Federal Reserve Bank of Minneapolis at 800-553-2663. |
This page updated on 6/22/98