New US Savings Bonds are being issued with an interest rate of 0.1%. Many people feel they’re not worth buying these days. But if you have older bonds, they’re a different story. They often turn out to be real bright spots in investors’ low-risk savings.
The most popular bonds are the EE series (and their predecessors, E bonds). These usually sold for less than their face value, but can grow to be worth much more. EE bonds, for example, keep earning interest until 30 years after their date of issue. Some of my clients have $100 bonds they bought for $50, but that are now worth about $350 each. One client had a $200 Series E bond that he bought decades ago for $150. It’s stopped earning interest. But its current value is more than $1,000—giving the owner more than $850 in earnings.
While H and HH bonds are not nearly as popular, many people have them, having traded in other bonds to get them. These could still be earning interest, too, even though the Treasury no longer issues them.
Series I bonds are meant to counter some effects of inflation. Like new Series EE bonds, new I bonds aren’t paying much interest right now.
Eventually, US Savings Bonds reach a “final maturity,” past which they earn no more interest—they max out. If you have such bonds, you should probably consider cashing them in. That’s because the interest on savings bonds is usually tax-deferred until the bonds are cashed. So that bond that earned $850 in interest? While it’s not subject to either state or local income tax, when it’s cashed in, the bank will issue a Form 1099 showing all the interest.
But there’s a twist. Even if it isn’t cashed, savings bond interest is taxable when the bond reaches its final maturity. I’ve never seen a Form 1099 for a mature uncashed savings bond, and in practice, owners typically report the interest and pay the tax only once they’ve received the form. Consult your tax advisor for what to do in your situation.
Lots of people have so many matured savings bonds that if they cashed them all in and paid the tax at one time, it would push them into a higher tax bracket.
So if you have a lot of older bonds, be sure to find out how much they’ve earned, and whether any of the tax has already been paid, before you cash them in. Your tax advisor may suggest you hang on to some of them until January. Splitting the redemption between two or more years might reduce your tax liability.
If your bonds are still earning interest, and you don’t need the money right now, chances are you’ll want to hold onto them. The guaranteed interest you’re earning on them is probably much better than you can currently get elsewhere.
The US Treasury maintains a website, www.savingsbonds.gov, with a lot of additional information. You can find out how much your bonds are worth, and whether they are still earning interest, using their on-line calculator. You can save the inventory to your computer, and update values as time goes on. Or download a free Windows program from the site to maintain a detailed inventory of all your bonds.