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In The Money November 12th, 2009

Articles that discuss the earning of money, the investment of money, the saving of money.

Invest in America Buy Bonds

Mike Brandone

It’s everyone’s patriotic duty to support and invest in America.

In 1935, then President Franklin D. Roosevelt signed legislation creating the first “baby bond,” United States Savings Bonds that encouraged savings by Americans in government financing.

I felt compelled to discuss Government Bonds for this edition because if you haven’t heard there are millions of dollars in unclaimed mature bonds outstanding and recently a number of individual states have petitioned Washington to have these funds transferred into the State’s general funds. We don’t think Washington will comply but it’s interesting to watch the process and the debate.

These Bonds have taken many forms since 1935, first were the “baby bonds”; these were issued between 1935 and 1941. Next came the F and G bonds which were issued between 1941 to 1952; J and K bonds were also issued during this time but they lasted until 1957. Then came H bonds (1952 to 1979), HH bonds (1980 to 2004), and Savings notes (1967 to 1970). Which brings us to the Government’s current offering, EE and I bonds.

Some background on the current offerings: The I bonds were introduced in 1998 and are indexed for inflation. I Bonds are purchased at face value so if you purchase a $100 I Bond its value is $100. The minimum purchase is $50 if issued via paper or as low as $25 if you purchase the bond electronically. Maximum annual purchase is $30,000 for paper and $30,000 electronically or $60,000 in total. I Bonds are an accrual type security; this means that interest is added to the bond monthly. The interest is paid when the bond is cashed; the bond earns interest for 30 years and is compounded semiannually. The earnings rate of the bond is determined by a fixed rate of return plus a semiannual inflation rate. I Bonds issued after February 1, 2003, must be held for 12 months before they can be cashed, and if an investor cashes in an I Bond within the first five years of the term the investor is penalized by losing three months worth of interest. Finally, the interest on an I Bond can be deferred until the bond is cashed or it can be declared on your federal tax return as earned each year.

EE Bonds can be purchased either via paper or electronically, the same as I Bonds. Their minimums and maximum purchase amounts are the same but one main difference is the cost. EE Bonds purchased via paper are purchased at a discount ($25 will get you a $50 bond) but EE bonds purchased electronically are purchased at face value. The interest rate for EE bonds is established every six months so there is no way to predict when these types of bonds will reach face value. The greater the interest rates the shorter the time frame. EE Bonds, like I Bonds, must be held for at least 12 months. But the biggest difference between the two types of bonds is that EE Bonds need to be cashed in on or before maturity. EE Bonds will stop paying interest at maturity. There is no reason to hold this investment as no interest or income will be generated, also at maturity the tax on the interest is due. Holding the bond will not defer the taxes.

Government bonds today are not your father’s government bonds. Today’s bonds are more flexible and take into account inflation which over time is one of the best advancements our government has added to these investments.

If you are interested in knowing more about bonds or investments in general, we are available to assist in any way we can.

We’re here to help you understand the financial and governmental rules and regulations maze. If you’d like us to analyze your portfolio, if you’d like to simply sit down and chat, we’d be delighted. Call us. 858-259-0131, ext 313 Mike Brandone.


Mr. Brandone is the President of Horizon Financial Services, a retirement, financial planning and wealth management firm in Del Mar CA. For questions he can be reached at 858-259-0131, ext 313 or via e-mail at









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