Should You Cash In Your Savings Bonds?

I’ve got some antiques sitting in my safe deposit box at the bank. It’s not a piece of heirloom jewelry, my grandfather’s stamp collection or even my father’s gold coins. Instead, they’re something made obsolete by the United States Government: paper savings bonds. And I’m at a loss as to what to do with them.

For the past 30 years, my maternal grandmother has given me Series EE savings bonds for every birthday, Christmas, Easter, graduation: you name it, I got a savings bond for it. The savings bond she gave me for Christmas 2011, however, will be the last paper bond I ever receive from her. That’s because under the direction of the U.S. Treasury Department, financial institutions stopped selling these paper bonds – in favor of electronic bonds – as of January 1, 2012.

My husband and I are in the process of house hunting, and are looking to maximize our savings in hopes of putting down the all-powerful 20 percent down payment. But is it worth depleting your investment portfolio to add to your savings account? It all depends on what kind of savings bonds you have and how long you’ve had them.

  • Check the dates on your savings bonds – if you have the old paper version, like I do, there’s a circle with the words “dating stamp” on the right side of the front of the bond. If your EE/E or I series savings bonds are less than a year old than you can, in the words of Donnie Brasco, forget about it. Since 2003, it’s been the rule that you must hold on to all bonds for at least 12 months before cashing savings bonds.If you’ve held on to your savings bonds for less than five years, you’ll lose three months of accrued value when you cash it out.
  • Figure out how much your bonds are worth using a savings bonds calculator. I like the one at Treasury Direct. You’ll need to know four things in order to calculator how much your savings bonds are worth: the type of bond (printed in the top right corner of your paper bonds), its denomination (located in the top left corner), its issue date (month and date, so a bond issued in October of 1986 would have an issue date of 101986) and the serial number (a 12-digit alpha-numeric combination located in the bottom right corner of your bond). Savings bonds are purchased at half their face value, so a $50 series EE bond costs $25 to buy; it’s said to “mature” when it hits its face value.

For example, one of my oldest savings bonds is from December 1984. I plugged the information from this $50 into the savings bonds calculator and found it’s worth $102 – double its face value and more than four times more than the $25 for which my grandmother purchased it. On the other hand, one of my more recent bonds — a $50 “Patriot Bond” issued in April of 2005 — is worth just $30.

  • Examine the fine print on your bonds. Depending on when your bond was issued, it will accrue interest at a different rate for a different amount of time. The website SavingsBonds.com does a great job of breaking down these maturity rates. For example, the $50 Patriot Bond I mentioned above will accrue interest at a fixed rate – in my case, 1.77 percent – for the first 20 years. My savings bond from 1984, however, has been earning interest at the market rate since 1989. Most bonds issued in the past 30 years stop increasing in value after 30 years, although some are designed to reach their maturity rate in a considerably shorter period.
  • Check out the “Note” column on the far right of the table on the Treasury Direct savings bonds calculator. This column will let you know whether your bonds are eligible to be redeemed, will incur the three month penalty or have reached maturity and are no longer accruing interest.
  • Look at the “Next accrual” and “Final maturity” columns on the Treasury Direct table. For example, one of my bonds says its next accrual date is 3/2012. In other words, if I can wait a few more weeks, I’ll get even more money. It may only amount to a few cents, but what have I got to lose by holding off a matter of days?
  • Like a 401(k) account, your savings bonds are tax-deferred. This means you’re essentially deferring the tax payment on these bonds until you cash them out, whether the bonds have reached, passed or failed to meet maturity. There are exceptions to this rule – including the Education Savings Bond Program – but generally speaking, you’ll have to report the interest earned on when cashing savings bonds, which could push you into a higher tax bracket or affect your ability to put money into other investment accounts like your 401(k). If you’re only redeeming a few bonds with a relatively low value, this may not be a big deal; but if you’re cashing in many high-value bonds, you may want to consult with a tax professional first.

In my case, my husband and I ultimately decided to redeem savings bonds that had reached their maturity. The ultimate decision, though, is up to you. The smart money’s on leaving your savings bonds alone, allowing them to max out.

 

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