It’s Thursday. I’m grabbin’ some coffee while OG takes the driver’s seat….
Recently, a client emailed me a peculiar list of dollar amounts and dates. Each was followed by a one or two letter symbol.
What the heck?
Finally the lightbulb went off – this was a list of US Savings Bonds we’d discussed months earlier that she’d “found” in her safety deposit box. Her question: What to do with all those bonds? Cash them in? Keep them?
The Savings Bond Conundrum
Clients raise this question at least once every couple months – and I’ll bet as more and more baby-boomers head into retirement the frequency is only going to increase. For some reason, people seem to think analyzing savings bond interest is a complicated financial problem that only the best advisors can solve. Nothing could be further from the truth – let me show you exactly how I determine whether to keep or cash in each bond.
Small Numbers of Bonds
If you own only a few bonds, I’d recommend using the US Treasury’s savings bond calculator. This tool helps you quickly estimate the value, interest accumulated, yield, next interest payment date, and final payment date. All you’ll need is the issue type (E, EE, or I), face amount, and the month and year. All of that information is found on the face of the bond.
Lots of Bonds?
If you’re the Donald Trump of savings bonds, or if you want to track the bond’s value over longer periods, you should download the government’s Savings Bond Wizard tool found at http://www.treasurydirect.gov/indiv/tools/tools_savingsbondwizard.htm. The Savings Bond Wizard allows you to save the file and refresh it each month with the most updated values. Here you can store information about each of your bonds and easily compare interest rates and the total value of your savings bond empire.
Is Your Bond Still Making Money?
Here’s a tip: don’t hold on to bonds that no longer pay interest.
After thirty years, US Savings Bonds mature and the government shuts you off like a disinherited trust fund baby. Most bonds reach their face value somewhere between 12 and 15 years after issue and continue to pay interest until year 30.
It’s foolish to keep a bond past 30 years. Don’t do it.
One client brought in a savings bond that stopped paying interest before Kennedy was president! Imagine how much money that’s cost him.
The Moment of Truth
After you’ve used all of your fingers and toes (AND one and a half neighbors’ fingers and toes) to determined whether or not it’s still paying interest (let’s assume it is), now it’s judgment time:
Can you invest the proceeds at a better rate of return than you’re receiving from the government?
The yield on your savings bond is risk free. Those two words are hard to beat. I’ve seen bonds from the 80’s paying 6%. Can’t beat that. I’d keep those.
Final Step
Set a reminder to review your bonds again a few years down the line. If you have a bond or two that you’d like to redeem, schedule it in advance. Don’t forfeit interest because you procrastinated. Keep an updated bond inventory and review it periodically just as you would any other part of your portfolio.
Savings bonds are one of the best ways to lock in guaranteed interest – especially if you have some from ten or twenty years ago. Many clients are surprised when I tell them to keep their bonds; sometimes it’s in their best interest to do so! Many times people think savings bonds are a waste of time and money. My take: In today’s low interest rate environment yesterday’s bonds may just be a gold mine.
I just recently cashed in a savings bond I got when I was born. I think it had stopped paying interest a few years ago.
I agree that savings bonds are going to become more of an issue as Baby Boomers retire and start cashing them in. I know my Stepdad used to buy a $100 bond each month for quite a few years and don’t believe he’s started to cash them in yet.
If interest rates ever head back up I may lock in some money in these bonds to guarantee a rate of return for a lonnnnnng time.
I don’t have any savings bonds and frankly didn’t know much about them, but your post has encouraged me to look into bonds more seriously. Yep, the interest rates now are so bad that maybe it’s not a bad idea after all to take up your suggestion.
When my mother died, I cashed in some World War II war bonds. They stopped earning interest years ago.
I hope you took a picture! That’s a piece of history you could show your students!
You might find this amusing. I stumbled across some old war bonds that stopped accruing interest in 1948. someone definitely missed the ball in redeeming.
I’m a big savings bond proponent. I-Bonds are paying 2.2% interest right now. Some of my EE bonds from 2005 and 2006 are paying 4.5%. My strategy has been to keep at least half my emergency funds in savings bonds. It’s done wonders for keeping up with inflation and actually increasing the size of our emergency funds.
Yesterday’s bonds may be a gold mine today, but today’s bonds may be tomorrow’s Charmin. 😉
This is the best comment I’ve read in weeks! I agree.
I cash in EE bonds my grands give to our son as soon as I can. The rates are laughable to keep the money there for 17 years.
I’m a huge fan of I bonds, with their inflation protection. The only downside are the amounts one can purchase per year!! We buy as many as we can with our fixed allocation portion of our portfolio.
I didn’t realize that bonds stopped paying interest after 30 years. I know C has some that were given to him as a baby/young child. I think it might be time to dig them up and double check the dates, than cash out anything that isn’t paying interest. Even the 1.25% on our high yield savings account is better than nothing.