PART 359—OFFERING OF UNITED STATES SAVINGS BONDS, SERIES I Authority: 5 U.S.C. 301; 12 U.S.C. 391; 31 U.S.C. 3105. Source: 67 FR 64278, Oct. 17, 2002, unless otherwise noted. Subpart A—General Information § 359.0 What does this part cover? This part is the offering of United States Savings Bonds of Series I (referred to as Series I bonds or bonds) for sale to the people of the United States by the Secretary of the Treasury (Secretary). This offer was effective September 1, 1998, and will continue until terminated by the Secretary. § 359.1 What regulations govern Series I savings bonds? (a) The regulations in 31 CFR part 360 apply to definitive (paper) Series I savings bonds that have not been converted to book-entry bonds through New Treasury Direct. (b) The regulations in 31 CFR part 363 apply to: (1) book-entry Series I savings bonds that were originally issued as book-entry bonds in New Treasury Direct; and (2) definitive Series I savings bonds that have been converted to book-entry bonds through New Treasury Direct. (c) We expressly disclaim any representations or warranties regarding Series I savings bonds that in any way conflict with these regulations and other applicable law. [67 FR 64278, Oct. 17, 2002, as amended at 70 FR 14942, Mar. 23, 2005] § 359.2 [Reserved] § 359.3 What special terms do I need to know to understand this part? Accrual date Automated Clearing House (ACH) Bank account Beneficiary Book-entry bond Composite annual rate Converted bond Coowner CPI-U, or U.S. City Average All Items Consumer Price Index for All Urban Consumers (non seasonally adjusted) Definitive bond Deflation Face amount Fiduciary Fixed rate fixed rate of return Individual Inflation Inscription Interest, Issue date Issuing agent New Treasury Direct system (New Treasury Direct) Owner Par Paying agent Person Primary owner Principal amount Redemption of a book-entry Series I savings bonds Redemption of a definitive Series I savings bonds Redemption value Registration Registration of a book-entry Series I savings bonds Registration of a definitive Series I savings bonds Secondary owner Semiannual inflation rate Semiannual rate periods Series I savings bond Single owner Taxpayer identification number (TIN) We, us, our You your [67 FR 64278, Oct. 17, 2002, as amended at 70 FR 14942, Mar. 23, 2005; 71 FR 46857, Aug. 15, 2006] § 359.4 In what form are Series I savings bonds issued? Series I savings bonds are issued in book-entry form. Effective January 1, 2012, Treasury discontinued the issuance of definitive Series I savings bonds. [76 FR 66856, Oct. 28, 2011] § 359.5 What is the maturity period of a Series I savings bonds? Series I savings bonds have a total maturity period of 30 years from the issue date, consisting of an original maturity period of 20 years and an extension period of 10 years. § 359.6 When may I redeem my Series I bond? (a) Bonds issued on December 1, 2002, or earlier. (b) Bonds issued on February 1, 2003, or thereafter. You may redeem your Series I savings bond issued on February 1, 2003, or thereafter, at any time after 12 months from its issue date. [68 FR 2667, Jan. 17, 2003, as amended at 68 FR 7427, Feb. 14, 2003] § 359.7 If I redeem a Series I savings bonds before five years after the issue date, is there an interest penalty? If you redeem a bond less than five years after the issue date, we will reduce the overall earning period by three months. For example, if you redeem a bond issued January 1, 2002, nine months later on October 1, 2002, the redemption value will be determined by applying the value calculation procedures and composite rate for that bond as if the redemption date were three months earlier (July 1, 2002). However, we will not reduce the redemption value of a bond subject to the three-month interest penalty below the issue price (par). This penalty does not apply to bonds redeemed five years or more after the issue date. § 359.8 How does interest accrue on Series I savings bonds? A bond accrues interest based on both a fixed rate of return and a semiannual inflation rate. A single, annual rate called the composite rate reflects the combined effects of the fixed rate and the semiannual inflation rate. For more information, see appendix B of part 359. § 359.9 When are interest rates for Series I savings bonds announced? (a) The Secretary will furnish fixed rates, semiannual inflation rates, and composite rates for Series I savings bonds in announcements published each May 1 and November 1. (b) If the regularly scheduled date for the announcement is a day when the Treasury is not open for business, then the Secretary will make the announcement on the next business day. However, the effective date of the rates remains the first day of the month of the announcement. (c) The Secretary may announce rates at any other time. § 359.10 What is the fixed rate of return? The Secretary, or the Secretary's designee, determines the fixed rate of return. The fixed rate is established for the life of the bond. The fixed rate will always be greater than or equal to 0.00%. 1 1 [73 FR 65543, Nov. 4, 1008] § 359.11 What is the semiannual inflation rate? The index used to determine the semiannual inflation rate is the non-seasonally adjusted CPI-U (the Consumer Price Index for All Urban Consumers for the U.S. City Average for All Items, 1982-84 = 100) published by the Bureau of Labor Statistics of the U.S. Department of Labor. (For further information on CPI-U considerations, see Semiannual inflation rate = (CPI − U Current Prior Prior § 359.12 What happens in deflationary conditions? In certain deflationary situations, the semiannual inflation rate may be negative. Negative semiannual inflation rates will be used in the same way as positive semiannual inflation rates. However, if the semiannual inflation rate is negative to the extent that it completely offsets the fixed rate of return, the redemption value of a Series I bond for any particular month will not be less than the value for the preceding month. § 359.13 What are composite rates? Composite rates are single, annual interest rates that reflect the combined effects of the fixed rate and the semiannual inflation rate. The composite rate will always be greater than or equal to 0.00%. [73 FR 65544, Nov. 4, 1008] § 359.14 How are composite rates determined? Composite rates are set according to the following formula (See appendix A to part 359 for examples of calculations involving composite interest rates.): Composite rate = {(Fixed rate ÷ 2) + Semiannual inflation rate + [Semiannual inflation rate × (Fixed rate ÷ 2)]} × 2. 2 2 Fixed rate = 2.00% Inflation rate = 0.28% Composite rate = [0.0200 ÷ 2 + 0.0028 + (0.0028 × 0.0200 ÷ 2)] × 2 Composite rate = [0.0100 + 0.0028 + 0.000028] × 2 Composite rate = 0.012828 × 2 Composite rate = 0.025656 Composite rate = 0.0257 (rounded) Composite rate = 2.57% (rounded) § 359.15 When is the composite rate applied to Series I savings bonds? The most recently announced composite rate applies to a bond during its next semiannual rate period. A bond's semiannual rate periods are consecutive six-month periods, the first of which begins with the bond's issue date. This means that there can be a delay of several months from the time of a composite rate announcement to the time that rate determines interest earnings for a bond. For example, if you purchased a bond in April, its semiannual rate periods begin every April and October. At the beginning of the semiannual rate period in April, the most recently announced composite rate would have been the rate we announced the previous November. This rate will determine interest earnings for your bond for the next six months, through the end of September. At the beginning of the semiannual rate period in October, the most recently announced composite rate would be the rate announced the previous May. This rate will determine interest earnings for your bond through the end of the following March. However, if you purchased a bond instead in May, its semiannual rate periods begin in May and November. Therefore, the composite rates announced in May and November will apply immediately to this bond. (See appendix C to part 359 at § 2 for a discussion of rate lag.) § 359.16 When does interest accrue on Series I savings bonds? (a) Interest, if any, accrues on the first day of each month; that is, we add the interest earned on a bond during any given month to its value at the beginning of the following month. (b) The accrued interest compounds semiannually. § 359.17 When is interest payable on Series I savings bonds? Interest earnings are payable upon redemption. § 359.18 Is the determination of the Secretary on rates and values final? The Secretary's determination of fixed rates of return, semiannual inflation rates, composite rates, and savings bonds redemption values is final and conclusive. § 359.19 How is interest calculated? We base all calculations of interest on a $25 unit. We use the value of this unit to determine the value of bonds in higher denominations. The effect of rounding off the value of the $25 unit increases at higher denominations. This can work to your slight advantage or disadvantage, depending on whether we round the value up or down. 3 3 §§ 359.20-359.24 [Reserved] Subpart B—Definitive Series I Savings Bonds § 359.25 What were the denominations and prices of definitive Series I savings bonds? Prior to January 1, 2012, definitive Series I savings bonds were issued in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. These definitive bonds were sold at par; that is, the purchase price was the same as the denomination (face value). [76 FR 66856, Oct. 28, 2011] § 359.26 When are definitive Series I savings bonds validly issued? A definitive bond is validly issued when it is registered as provided in part 360, and when it bears an issue date and the validation indicia of an authorized issuing agent. § 359.27 What is the issue date of a definitive Series I savings bond? The issue date of a definitive bond is the first day of the month in which an authorized issuing agent received payment of the issue price. [76 FR 66856, Oct. 28, 2011] § 359.28 Are taxpayer identification numbers (TINs) required for the registration of definitive Series I savings bonds? The registration of a definitive Series I savings bond must include the TIN of the owner or first-named coowner. If the bond was purchased as a gift or award and the owner's TIN is not known, the TIN of the purchaser must be included in the registration of the bond. [71 FR 46857, Aug. 15, 2006, as amended at 76 FR 66856, Oct. 28, 2011] §§ 359.29-359.33 [Reserved] § 359.34 May I purchase definitive Series I savings bonds over-the-counter? Effective January 1, 2012, Treasury discontinued the over-the-counter sale of definitive Series I savings bonds. [76 FR 66856, Oct. 28, 2011] § 359.35 May I purchase definitive Series I savings bonds through a payroll savings plan? Treasury discontinued the issuance of definitive Series I savings bonds through a payroll savings plan: (a) Effective October 1, 2010, for United States government employees, and (b) Effective January 1, 2011, for all other employees. [75 FR 52461, Aug. 26, 2010] § 359.36 May I purchase definitive Series I savings bonds through employee thrift, savings, vacation, and similar plans? You may purchase bonds registered in the names of employee plans in authorized denominations through a designated Federal Reserve Bank, as provided in part 360 of this chapter. § 359.37 How are definitive Series I savings bonds delivered? We deliver definitive bonds by mail to your address. If your address is within the United States, its territories or possessions, or the Commonwealth of Puerto Rico, we will deliver bonds at our risk. Bonds delivered elsewhere will be delivered at your risk; however, at our discretion, we may require delivery to an address within the United States, or refuse delivery to addresses in countries referred to in part 211 of this chapter. § 359.38 How is payment made when definitive Series I savings bonds are redeemed? A financial institution qualified as a paying agent under the provisions of part 321 will pay the current redemption value of a definitive Series I bond presented for payment. The bond must meet the requirements for payment specified in part 360. You must establish your identity and entitlement to redemption to the satisfaction of the agent, in accordance with our instructions and identification guidelines, and must sign and complete the request for payment. § 359.39 How are redemption values calculated for definitive Series I savings bonds? We determine the redemption value of a definitive savings bonds for the accrual date (the first day of each month) by first determining the composite rate as defined in § 359.13. If the result of the composite rate calculation is a negative value, zero will be the assumed composite rate in the redemption value calculation. Redemption values are calculated using the following formula (For examples of the calculation, see appendix A to part 359): FV = PV × {[1 + (CR ÷ 2)] ( m ÷ 6 Where: FV (future value) = redemption value on the accrual date rounded to the nearest cent without consideration of penalty. PV (present value) = redemption value at the beginning of the semiannual rate period calculated without consideration of penalty. For bonds that are older than five years, PV will equal the redemption value at the start of the semiannual rate period. CR = composite rate converted to decimal form by dividing by 100. m = number of full calendar months elapsed during the semiannual rate period. § 359.40 How can I find out what my definitive Series I savings bonds are worth? (a) Redemption values. (1) You may determine the redemption value for definitive bonds on the Internet at www.savingsbonds.gov. (2) You may download savings bonds calculators from the Internet at www.savingsbonds.gov. (3) You may obtain paper tables from the Bureau of the Fiscal Service, Parkersburg, West Virginia 26106-1328. We reserve the right to cease making paper tables of redemption values available. (b) Redemption penalty. §§ 359.41-359.44 [Reserved] Subpart C—Book-Entry Series I Savings Bonds § 359.45 How are book-entry Series I savings bonds purchased and held? Book-entry bonds must be purchased and held online through your New Treasury Direct account. We provide instructions for opening an account online at http://www.fiscal.treasury.gov. § 359.46 What are the denominations and prices of book-entry Series I savings bonds? Book-entry bonds are issued in a minimum amount of $25, with additional increments of one cent. Book-entry bonds are sold at par value. § 359.47 How is payment made for purchases of book-entry Series I savings bonds? You may only purchase book-entry Series I savings bonds online through your New Treasury Direct account. You may pay for your securities through a debit to your designated account at a United States depository financial institution, or by applying the redemption proceeds of a certificate of indebtedness held in your New Treasury Direct account. [69 FR 50308, Aug. 16, 2004] § 359.48 How are redemption payments made for my redeemed book-entry Series I savings bonds? We will make payments electronically by direct deposit, using the ACH method, to your designated account at a United States depository financial institution. You may also direct that a payment be used to purchase a certificate of indebtedness to be held in your New Treasury Direct account. [69 FR 50308, Aug. 16, 2004] § 359.49 What is the issue date of a book-entry Series I savings bond? The issue date of a book-entry Series I savings bond is the first day of the month in which the security posts to the current holdings of the account owner. [69 FR 50308, Aug. 16, 2004] § 359.50 What amount of book-entry Series I savings bonds may I acquire per year? The principal amount of book-entry Series I savings bonds that you may acquire in any calendar year is provided at § 363.52. [77 FR 213, Jan. 4, 2012] §§ 359.51-359.52 [Reserved] § 359.53 Are taxpayer identification numbers (TINs) required for registration of book-entry Series I savings bonds? The TIN of each person named in the registration is required to purchase a book-entry bond. § 359.54 When is a book-entry Series I savings bonds validly issued? A book-entry bond is validly issued when it is posted to your New Treasury Direct account. § 359.55 How are redemption values calculated for book-entry Series I savings bonds? We base current redemption values (CRV) for book-entry Series I savings bonds on the definitive savings bonds CRV. To calculate the book-entry values, we use the CRV for the $100 denomination Series I savings bonds and calculate a CRV prorated to the book-entry par investment amount for the corresponding issue and redemption dates. Calculated book-entry CRV will be rounded to the nearest one cent. 4 4 [Book-entry par investment ÷ 100] × [CRV value for $100 bond]. [67 FR 64278, Oct. 17, 2002, as amended at 75 FR 52461, Aug. 26, 2010] § 359.56 How can I find out what my book-entry Series I savings bonds are worth? (a) Redemption values. (b) Redemption penalty. §§ 359.57-359.64 [Reserved] Subpart D—Miscellaneous Provisions § 359.65 [Reserved] § 359.66 Is the Education Savings Bonds Program available for Series I savings bonds? You may be able to exclude from income for Federal income tax purposes all or part of the interest received on the redemption of qualified bonds during the year. To qualify for the program, you or the co-owner (in the case of definitive savings bonds) must have paid qualified higher education expenses during the same year. You also must have satisfied certain other conditions. This exclusion is known as the Education Savings Bonds Program. Information about the program can be found in Internal Revenue Service Publications. (For example, see Publication 17, “Your Federal Income Tax,” Publication 550, “Investment Income and Expenses,” and Publication 970, “Tax Benefits of Higher Education.”) § 359.67 Does Fiscal Service prohibit the issuance of Series I savings bonds in a chain letter scheme? We do not permit bonds to be issued in a chain letter or pyramid scheme. We authorize an issuing agent to refuse to issue a bond or accept a purchase order if there is reason to believe that a purchase is connected with a chain letter. The agent's decision is final. § 359.68 [Reserved] § 359.69 Does Fiscal Service make any reservations as to issue of Series I savings bonds? We may reject any application for Series I bonds, in whole or in part. We may refuse to issue, or permit to be issued, any bonds in any case or class of cases, if we deem the action to be in the public interest. Our action in any such respect is final. § 359.70 May Fiscal Service waive any provision in this part? We may waive or modify any provision of this part in any particular case or class of cases for the convenience of the United States or in order to relieve any person or persons of unnecessary hardship: (a) If such action would not be inconsistent with law or equity; (b) If it does not impair any material existing rights; and (c) If we are satisfied that such action would not subject the United States to any substantial expense or liability. § 359.71 What is the role of Federal Reserve Banks and Branches? (a) Federal Reserve Banks and Branches are fiscal agents of the United States. They are authorized to perform such services as we may request of them, in connection with the issue, servicing and redemption of Series I bonds. (b) We have currently designated the following Federal Reserve Offices to provide savings bonds services: Servicing site Reserve district served Geographic area served Federal Reserve Bank, Buffalo Branch, 160 Delaware Avenue, Buffalo, NY 14202 New York, Boston Connecticut, Maine, Massachusetts, New Hampshire, New Jersey (Northern half), New York, Rhode Island, Vermont, Puerto Rico, Virgin Islands. Federal Reserve Bank, Pittsburgh Branch, 717 Grant Street, Pittsburgh, PA 15219 Cleveland, Philadelphia Delaware, Kentucky (eastern half), New Jersey, (southern half), Ohio, Pennsylvania, West Virginia (northern panhandle). Federal Reserve Bank of Richmond, 701 East Byrd Street, Richmond, VA 23219 Richmond, Atlanta Alabama, District of Columbia, Florida, Georgia, Louisiana (southern half), Maryland, Mississippi (southern half), North Carolina, South Carolina, Tennessee (eastern half), Virginia, West Virginia (except northern panhandle). Federal Reserve Bank of Minneapolis, 90 Hennepin Avenue, Minneapolis, MN 55401 Minneapolis, Chicago Illinois (northern half), Indiana (northern half), Iowa, Michigan, Minnesota, Montana, North Dakota, South Dakota, Wisconsin. Federal Reserve Bank of Kansas City, 925 Grand Boulevard, Kansas City, MO 64106 Dallas, San Francisco, Kansas City, St. Louis Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Idaho, Illinois (southern half), Indiana (southern half), Kansas, Kentucky (western half), Louisiana (northern half), Mississippi (northern half), Missouri, Nebraska, Nevada, New Mexico, Oklahoma, Oregon, Tennessee (western half), Texas, Utah, Washington, Wyoming, Guam. § 359.72 May the United States supplement or amend the offering of Series I savings bonds? We may supplement or amend the terms of this offering of Series I bonds at any time. Appendix A to Part 359—Redemption Value Calculations 1. What are some general tax considerations? Interest on savings bonds is subject to taxes imposed under the Internal Revenue Code of 1986, as amended. The bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes. (See 31 U.S.C. 3124.) 2. What is an example of a book-entry Series I savings bonds redemption value calculation? Assume a New Treasury Direct par investment amount in a book-entry Series I savings bonds of $34.59, with an issue date of May, 2001, and a redemption date of December, 2001. The published CRV for a definitive $100 Series I savings bonds issued May, 2001 and redeemed December, 2001 = $101.96. Calculation: [(Book-entry par investment) ÷ (100)] × CRV value for $100 bond [(34.59 ÷ 100)] × 101.96 [0.3459] × 101.96 35.267964 = $35.27 Appendix B to Part 359—Composite Semiannual Rate Period Table 1. What months make up the composite semiannual rate period? You may use the following table to find when a bond's semiannual rate period begins and when we'll announce the rate that applies during each period. If your Bond has an issue date of— Then its semiannual rate period begins— We announce the rate that applies during a rate period in— January January 1 November 1 (of the previous year). July 1 May 1. February February 1 November 1 (of the previous year). August 1 May 1. March March 1 November 1 (of the previous year). September 1 May 1. April April 1 November 1 (of the previous year). October 1 May 1. May May 1 May 1. November 1 November 1. June June 1 May 1. December 1 November 1. July July 1 May 1. January 1 November 1 (of the previous year). August August 1 May 1. February 1 November 1 (of the previous year). September September 1 May 1 March 1 November 1 (of the previous year). October October 1 May 1. April 1 November 1 (of the previous year). November November 1 November 1. May 1 May 1. December December 1 November 1. June 1 May 1. Appendix C to Part 359—Investment Considerations 1. What are some index contingencies? (a) If a previously reported CPI-U is revised, we will continue to use the previously reported CPI-U in calculating redemption values. (b) If the CPI-U is rebased to a different year, we will continue to use the CPI-U based on the base reference period in effect when the security was first issued, as long as that CPI-U continues to be published. (c) If, while an inflation-indexed savings bonds is outstanding, the applicable CPI-U is discontinued or, in the judgment of the Secretary, fundamentally altered in a manner materially adverse to the interests of an investor in the security, or, in the judgment of the Secretary, altered by legislation or Executive Order in a manner materially adverse to the interests of an investor in the security, Treasury, after consulting with the Bureau of Labor Statistics or any successor agency, will substitute an appropriate alternative index. Treasury will then notify the public of the substitute index and how it will be applied. The Secretary's determinations in this regard will be final. (d) If the CPI-U for a particular month is not reported by the last day of the following month, we will announce an index number based on the last 12-month change in the CPI-U available. Any calculations of our payment obligations on the inflation-indexed savings bonds that rely on that month's CPI-U will be based on the index number that we have announced. 2. How will inflation lag affect my Series I savings bonds? The inflation rate component of investor earnings will be determined twice each year. This rate will be the percentage change in the CPI-U for the six months ending each March and September. The rate will be included in the composite rate that is announced each May and November. For Series I bonds offered from September 1, 1998, through October 31, 1998, the inflation rate component of investor earnings will be the percentage change in the CPI-U for the six months ending March 31, 1998. This rate will be included in the composite rate that is announced for Series I bonds offered effective from September 1, 1998, through October 31, 1998. In the event the Secretary, or the Secretary's designee, announces a composite rate at an effective date other than May 1 or November 1, the announcement will specify the period to be used to calculate the semiannual inflation rate. Each composite rate will be effective for the entirety of the applicable rate period that begins while the rate is in effect. Thus, an inflation rate may affect interest accruals from 3 to 13 months from the date that the CPI-U is measured. Example 1. The inflation rate determined from the CPI-U for the six-month period from October, 2003, through March, 2004, will be included in the composite rate announced in May, 2004. For a bond purchased in May 1999, this rate would go into effect immediately, since a new semiannual rate period for this bond will begin in May, 2004. Series I bonds issued in May begin new semiannual rate periods in the months of May and November. In this example, the inflation rate will have its earliest impact in June 2004, when interest from May accrues, three months after the end of the six-month CPI-U period that ends in March, 2004. Example 2. The May 1, 2004, rate will apply similarly to a bond purchased in October 1999. Series I bonds issued in October begin new semiannual rate periods in the months of April and October. Thus, for this bond, the May 1, 2004, composite rate (which includes the inflation rate) will not go into effect until a new semiannual rate period begins on October 1, 2004. This rate, therefore, will determine the inflation-indexed portion of each interest accrual from November, 2004, through April, 2005. In this example, the inflation rate will have its latest impact in April 2005, 13 months following the six-month CPI-U period that ended March 31, 2004. Appendix D to Part 359—Tax Considerations 1. What are some general tax considerations? General. 2. What reporting methods are available for savings bonds? (a) Reporting methods. (1) Cash basis method. (2) Accrual basis method. (b) Changing methods. 3. What transactions have potential tax consequences? The following types of transactions, among others, may have potential tax consequences: (a) A reissue that affects the rights of any of the persons named on a definitive Series I savings bonds may have tax consequences for the owner. (b) The transfer of a book-entry Series I savings bonds from one owner to another may have tax consequences for the purchaser. (c) The redemption of a book-entry Series I savings bonds by the secondary owner may have tax consequences for the primary owner. (d) The purchase of a Series I savings bonds as a gift may have gift tax consequences for the purchaser. [67 FR 64278, Oct. 17, 2002, as amended at 68 FR 24806, May 8, 2003]