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Plan Well, Retire Well

Saving and investing your money
savings bond

About those savings bonds…


I am one of the 55 million Americans who own savings bonds. Almost all of those bonds are the old-fashioned paper ones, like mine. And my guess is that most of us do the same thing with our savings bonds: put them away and forget about them. That's okay for a while, but any financial asset needs to be reviewed periodically. I did that last week, and here are the things I thought about.

The interest rates and other terms for savings bonds have changed over the years. I have one bond from 1985 and a couple of bonds from 1999 and 2000 that I inherited from my dad. Here's what I learned as I looked at these bonds, the differences between them, and what I should do with them. Note: My bonds are paper EE savings bonds. For information about I-bonds or electronic EE bonds, go to treasurydirect.gov for an overview or in depth information.

How much is my bond worth? This is the easy part, and it's what everyone wants to know. I used the Treasury's calculator, and even saved my "inventory" so that I can easily check their updated values again later.

How old is that bond? EE Savings Bonds reach "final maturity" at 30 years, meaning that they no longer earn any interest after that. I was amazed to discover that I have one (the one from 1985) that will reach final maturity nexxt year. That means it's almost time to cash it in and put the money to work somewhere else.

How much is it earning? The bonds I inherited from my dad still have several years before they reach final maturity. To decide whether to hang onto them or cash them in, I needed to know how much interest they are earning. On the EE/E Savings Bonds Rates and Terms section at Treasury Direct, I scrolled down to select the time period my bonds were issued. The current interest rate is 1.19%; it will go up to 1.42% when the next six-month period starts. But there's more to that story, so keep on reading.

Where can I cash in a bond? TreasuryDirect.gov says that paper bonds can be redeemed (cashed in) at many "local financial institutions," but they don't provide a list. So I called a few to ask. The results were all across the board:

Type of institution

Size

Do they redeem savings bonds?

Requirements

Credit Union #1

Local; four locations

Yes

Valid photo id

Credit Union #2

Local; four locations

No

-

Bank #1

Major national bank

Yes

Only for account holders

Bank #2

Community bank with two locations

Yes

If not an account holder, only bonds of $1000 or less. Valid photo ID.

When's the best time to cash a bond? I remembered that there was a quirk about cashing in certain bonds, but it took me a while to find it: For bonds issued before May 1997, interest is only added every six months – on the first of the month it was issued, and six months from that. My 1985 bond that's about to reach final maturity was issued in February. That means I should redeem it either this August or next February, after the interest for each six-month period has been credited.

There's another quirk that applies to all EE bonds: All bonds have an "original maturity date" or "original term." The Treasury guarantees that a bond will be worth at least double the purchase price on its original maturity date.

The bonds I inherited from my dad were purchased in 1999 and 2000. Their original maturity is 17 years. By my calculations, that's an overall interest rate of 4.16%. That's huge compared with their current rates. It's also higher than what I calculated (on standard financial calculator using their purchase price and current value) as their average interest-rate-to-date of 3.3%. If I hold them until the 17-year anniversary, I'll essentially get a bonus. Sounds like a good idea to me, especially since there's nowhere else I can get a guaranteed, risk-free return like that!

After this data-gathering, it looks like I have a plan of action: cash in my 1985 bond either in August or next February, and hang onto my dad's bonds until they reach their seventeenth birthdays in 2016 and 2017.

Do you have savings bonds? Was this information helpful? Click below to leave a comment and let me know. If you have questions, please post those, too, and I will try to answer some of them in a future post.



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Yes, I inherited $30,000. in bonds from my mother and they were issued I think in 1991. I had no idea what to do with them, but after reading your wonderful post, I think I will hold onto them. NO ONE , including the attorney or banker, ever mentioned that little quirk about cashing them in, as pertaining to interest accrual. That would really matter to me. Thanks!!
by Marianne Gasparas on Friday 5/23/2014