Buying and Selling Savings Bonds

So far we have covered the now defunct Series E bonds, the basics of Series EE bonds and the basics of Series I bonds. Today we’ll discuss how to purchase and sell savings bonds.

There are two ways to purchase Series EE and Series I bonds: Paper & Electronic.

Electronic: The Federal Government has stated that its long-term goal is to consolidate all retail sales of Treasury Securities (of which Series EE and I bonds are a part) in TreasuryDirect®. To use TreasuryDirect® you first must have a savings or checking account at a bank that will allow direct transfers back and forth between it and the US Treasury.

Second, you must open a TreasuryDirect® account, which is an easy process.

Once your account is open you can make your purchase of either Series EE or Series I bonds in any amount between $25.00 and $5,000.00. See below for annual purchase limits.

The Treasury automatically credits interest to your electronic account and provides easy tools to keep track of your bonds and their value. When you choose to sell, you do it through TreasuryDirect® and your bank account automatically receives the funds.

If you change bank accounts after you purchase the bonds and before you cash them out, it is a straightforward proposition to change the bank account linked to your TreasuryDirect® account.

Paper: You can buy paper bonds at most financial institutions. Series I bonds come in $50, $75, $100, $200, $500, $1,000 & $5,000 denominations and sell at face value. Series EE bonds come in $50, $75, $100, $200, $500, $1,000, $5,000 & $10,000 denominations, but sell at half the price. This is a holdover from the original Series E bonds that sold at a discount from the face value.

Using Employer Payroll Savings Plans: Rather than go into details here, you can check with your employer’s Human Resources department to see if they participate and what rules they have in place. The Treasury department is phasing out purchase of paper (as opposed to electronic) bonds. Effective 9/30/2010 federal government employees will no longer be able to purchase paper bonds through payroll deduction. The ban will extend to all employers effective 1/1/2011.

Annual Purchase Limits: An individual can buy up to $5,000 of each type and form of savings bond. So you can buy $5,000 electronic EE bonds, $5,000 paper EE bonds, $5,000 electronic Series I bonds and $5,000 paper Series I bonds. Why, since the government wants to convert everything to electronic form, they limit the amount to $5,000 of each type of bond but let you buy another $5,000 in paper form makes no sense to me – but them’s the rules.

Sales: You perform electronic sales through TreasuryDirect® and the Treasury deposits the proceeds directly in your linked savings or checking account. You can cash in paper certificates at many financial institutions and receive the proceeds in cash. Check ahead of time, however, since some banks have been known to delay payment until they send the bonds to the Federal Reserve and have received confirmation. Remember the restrictions we discussed in a previous article: except in the case of certain declared emergencies you will not be able to cash out a Series EE or I bond for 12 months after purchase. If you cash out within the first five years, you will lose three months’ interest.

Next Up: Plusses and Minuses of Savings Bonds.

~ Jim