# SERIES HH SAVINGS BONDS WILL BE DISCONTINUED IN AUGUST

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# *But Investors Have Many Options, Including Holding On To Them* 

The U.S. Treasury Department has announced it will stop issuing Series
HH savings bonds this summer as part of its plan to eventually move to a
paperless, electronic account system encompassing all of Treasury's
retail securities.

After the close of business on August 31, owners of Series EE and E
bonds will no longer be able to exchange them for HH bonds, and owners
of matured HH/H bonds will no longer be able to reinvest their holdings
in HH bonds. However, investors holding HH bonds on that date will
continue to earn interest until their bonds reach final maturity 20
years after issue.

Issued since 1980, HH bonds --- which are available in multiples of
\$500 --- are current income securities. They provide owners of EE/ E
bonds with a means to defer reporting the accrued interest on those
bonds for Federal income tax purposes, while earning interest income
semiannually on both the principal and interest of the E/EE bonds.
Income taxes on the deferred income become due when HH bonds are
redeemed or reach maturity.

HH bonds pay interest income to owners semiannually on their face value.
This interest is taxable in the year received. They cannot be purchased
with cash, but are acquired only in exchange for Series E and EE bonds
or by reinvesting the proceeds of matured HH/H bonds.

Relatively few people have invested in HH bonds over the years. Today,
there are only a little more than 607,000 owners, compared to the tens
of millions of individuals who own at least one savings bond. HH bonds
make up \$13.3 billion worth of the more than \$200 billion invested in
savings bonds, representing just 7 percent of the market.

"Even after the discontinuance of HH bonds, U.S. Savings Bonds will
continue to be a flexible, low-risk and practical investment for
long-term financial goals, such as retirement and college expenses, for
people at all income levels," says Stephen Meyerhardt, public affairs
officer for the Bureau of the Public Debt. "We're simply consolidating
the bonds we offer as we move to make it easy for Americans to purchase,
manage and redeem bonds online through our TreasuryDirect account
system."

With the end of new Series HH issues just a few months away, there are
several things to consider. First, there is no effect on HH bonds issued
before August 31, 2004. Investors can hold onto these bonds, which will
continue to earn interest until the end of their 20-year life. The
annual interest rate for new HH bonds is now 1.5 percent, but HH bonds
issued (or having entered their second 10 years) between March 1994 and
December 2002 earn 4 percent until they are 10 years old, at which time
the rate will change for their next 10 years, or stop if the bonds have
reached final maturity.

As for investors who had planned to defer taxes by purchasing HH bonds
when their E/EE bonds matured, they have only a limited time to make an
exchange. But they too must carefully weigh the tradeoffs of exchanging
higher-interest E/EE bonds, which may be earning as much as 6 percent,
in order to gain the benefits of HH bonds while they're still available.

Owners of E/EE bonds who want to purchase HH bonds before the August
deadline should fill out an exchange application and submit it with the
bonds being exchanged to a qualified savings bonds agent. Financial
institutions that serve as agents are able to help customers fill out
the application form and forward appropriate materials to a Federal
Reserve processing site or the Bureau of the Public Debt.

After August 31, when the last HH bonds will be issued, investors can
still opt for I and EE bonds. I bonds currently pay an interest rate of
2.19 percent, composed of a fixed rate of 1.1 percent for 30 years and
an inflation rate that's adjusted semiannually.

EE bonds, which are guaranteed to reach face value in 20 years and earn
interest for a total of 30 years, earn interest tied to 90 percent of
the average return on five-year Treasury marketable securities.

U.S. securities can be compared online at
[www.treasurydirect.gov](http://www.treasurydirect.gov/), where
investors can open an account to buy savings bonds directly over the
Internet. Investors can track and manage their holdings online -- 24
hours a day, 7 days a week -- from anywhere they have Internet access.
There are no charges or fees, and you can buy paperless bonds in penny
increments ranging from \$25 to \$30,000 each year.

The site is ideal for small savers and investors because you don't need
to have \$1,000 or \$5,000 or an even larger amount to use the site.

Whichever bonds you chose, they remain among the safest, most secure and
affordable investment opportunities available, and they offer attractive
interest rates and tax advantages.

More information about savings bonds and exchange transactions can be
found on the U.S. Treasury's website,
[www.treasurydirect.gov](http://www.treasurydirect.gov/).

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