U.S. SAVINGS BONDS

Purchasing Savings Bonds

Redemption of Savings Bonds

General Information

Savings bonds are issued by the United States Treasury Department. Series E/EE, and I Bonds can be purchased or negotiated at any Pacific Trust Bank location; they can also be purchased directly from the US Treasury via its TreasuryDirect online service.

Starting May 1, 2005 the Series EE savings bond will have fixed interest rates for the life of the bond.

Interest rates on the Series EE bonds purchased prior to May 1, 2005 change every six months. The new fixed rate, which will be whatever the interest rate is in effect at the time of purchase, will not affect current Series EE bond holders or those purchased before May 1.

Bonds are registered securities backed by the full faith and credit of the United States; they cannot be sold or used as collateral. If lost or stolen, bonds can be replaced at no cost to the bond owner.

Here are some reasons for investing in U.S. Savings Bonds:

• You can buy Series EE and/or Series I savings bonds for a small amount of money -- the minimum investment is $25 when buying a savings bond at Pacific Trust Bank.

• They're lower risk than most investments since both principal and interest are guaranteed by the full faith and credit of the United States, and lost, stolen, or destroyed bonds can be replaced.

• They're convenient - you can buy savings bonds through most financial institutions, through payroll savings plans, and online through TreasuryDirect.

• There are no commissions or similar fees. Interest is exempt from State and local income tax and federal income taxation can be postponed until you cash your bond or until it stops earning interest in 30 years.

For more information about investing in savings bonds, see the U.S. Treasury Department's Savings Bond web site.

To determine the current value of U.S. savings bonds, go to the Savings Bond Calculator.

Buying U.S. Savings Bonds at Pacific Trust Bank

Banks accept applications and payment for bonds and forward them to a Federal Reserve Bank, where the bonds are issued and mailed to the owner. Bonds are delivered within 15 business days, and the bond's issue date reflects the date of application so no interest is lost. The Bank also has gift certificates that bond buyers can give to gift recipients to let them know a bond has been ordered for them.

Bonds can also be bought through the Payroll Savings Plan offered by many employers and through TreasuryDirect.

Types of Bonds Available

• I Bonds – are inflation-indexed accrual type bonds that are purchased at face value. While you own them, they earn interest and help protect your savings from inflation. They are State and local income tax exempt, and Federal income tax on I Bond earnings can be deferred until the bonds are cashed or they stop earning interest after 30 years. Investors cashing I Bonds before five years are subject to a 3-month earnings penalty.
  

The earnings rate for I Bonds is a combination of a fixed rate, which will apply for the life of the bond, and the inflation rate. 3.39% is the earnings rate for I Bonds bought from May through October 2004, and will apply for the first six months after their issue. The earnings rate combines the 1.0 percent fixed rate of return with the 2.38 percent annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 185.2 to 187.4 from September 2003 to March 2004, a six-month increase of 1.19 percent. A person can purchase up to $30,000 a year in Series I bonds.

• EE Bonds – are accrual type bonds and are purchased at 50% of face value. Interest on this type of bond accumulates and is paid as part of the redemption value when the bond is cashed. Series EE bonds earn market-based rates (90% of 6-month average of 5-year Treasury security yields) for up to 30 years.

The Series EE savings bond variable rate for those bonds issued prior to May 1, 2005 is 90 percent of the average 5-year Treasury securities yields for the preceding six months. A new interest rate is announced effective each May 1 and November 1. A 3-month interest penalty is applied to these bonds if redeemed before five years. The Series EE bonds on sale now increase in value monthly. The bond's interest rate is compounded semiannually.

• HH Bonds – are current income type bonds and are issued at face value. Interest on this type of bond is paid every six months by direct deposit via the ACH payment method. These can ONLY be purchased with I, C, E, or EE bonds; you may not use cash. Series HH bonds are only redeemed through the Federal Reserve Bank of Kansas City. August 2004 will be the last issue month for HH/H bonds. After August 31, 2004, you will no longer be able to reinvest your HH/H or exchange your EE/E bonds for HH bonds.

Eligible Owners **

A person is eligible to have bonds registered in her name (as owner or first-named co-owner) if she is a:

1. Resident of the United States, its territories and possessions;

2. Resident of the Commonwealth of Puerto Rico;

3. Citizen of the United States, residing abroad;

4. Civilian employee of the United States, or members of its Armed Forces (regardless of residence or citizenship, provided they have a taxpayer identification number);

5. Resident of Canada or Mexico that works in the US, but only if the bonds are purchased on a payroll savings plan and the owner provides a TIN (Tax ID Number).

** Individuals not included on this list may, however, be designated as co-owner or beneficiary, or as the owner in an authorized re-issue transaction, unless the individual is a resident of any area where the Treasury restricts or regulates the delivery of checks drawn on US funds.

Registration

Savings bonds are issued only in registered form, and the registration must specify the actual ownership of, and interest in the bond. Registration is conclusive of ownership. There are three authorized forms of registration for individuals:

• Single Ownership (one individual) - Only the registered owner may redeem the bond. At the death of the owner, the bond becomes the property of the bond owner’s estate.

• Co-ownership (two individuals as co-owners) - Either co-owner may cash the bond without the knowledge or approval of the other. At the death of one co-owner, the surviving co-owner becomes the sole owner of the bond.

• Beneficiary (one owner and one beneficiary) - The bond is redeemable only at the request of the registered owner. The beneficiary becomes the owner of the bond at the death of the original owner.

The TIN of the owner (or first-named co-owner) is required on all savings bonds. These numbers are used to establish and maintain ownership records of savings bonds; they are not used for Federal income tax reporting purposes.

Types of Bond Redemptions

To be eligible for redemption, savings bonds must be held for a full year. Bonds can only be redeemed by the bond's registered owner, co-owner or beneficiary. Appropriate ID of the Bond’s owner or co-owner is required, or the ID of the beneficiary with a certified copy of the bonds owner’s death certificate.

Bonds Redemption Restrictions

Bonds cannot be redeemed if they have not been held for twelve months since the issue date except when a waiver has been granted by the Treasury Department. Bond cashing is also limited for:

• Series F,G, J, K, H, and HH bonds;
  
• Bonds presented by an attorney-in-fact;
  
• Bonds issued in the name of a corporation, partnership, association, or other type of company or institution in its own right.
  
• When a payee does not furnish a SSN;
  
• When a presenter requests partial payment;
  
• Bonds are mutilated, altered, defaced, and/or irregular.