Savings Bonds – To Cash or Not to Cash

** UPDATE – Feel free to read the original post about what to do with your savings bonds, however, don’t forget to read my update at the end to see how much $$ I made!! **

Savings bonds.  The bummer of all gifts when we were kids.  It wasn’t cash, it had 1/2 the value that was stated, and we were forced to lock them up in our parents safe deposit box.  Ugh.   Well, like the little interest we shared back then – the bonds having none and me having less than none – we have both grown exponentially over time.

I have me a stack of 11 crisp Series EE savings bonds ranging from purchase dates of September 1991 to September 2000…any guess what month my birthday is?  All of my bonds are $50 and as of this month add up to  $727.18  in value.  That includes $452.18 in interest!   Here is a break down on the numbers…

Screenshot 2016-08-26 at 10.37.11 AM - Edited
via Treasury Direct

Who knew my little collection of bonds would grow to such a number?  Crazy!  But is it crazy good or crazy bad to keep them??

As you can see from the chart, I have only gained $12.60 in interest this year to date.  Kind of a bummer.  The bonds purchased before April 1995 are earning interest at a 4% fixed rate and will continue to earn 4% for 30 years from the issue date.  The interest is compounded semiannually.  Not bad when you consider current bank interest rates!

The bonds issued May 1995 and after vary in interest rates…none of which are good.  Do I wait until they reach full maturity to cash them in?  What would be the point…

In our normal crappy bank interest rate world, 1.24% isn’t a bad rate.  Of course, I could cash out and put them in the market and most likely get a better rate.  But I don’t have to do that.  Instead, I can cash out and add them to my Kick Ass Credit Union checking account which earns a guaranteed 4% APY compounded monthly…until they decide to change the rates but haven’t since 2013.

Check out the calculations below in regards to my 9/96 CD with the low interest rate of 1.24% compared to if I cash it out and deposit in my checking:

cd1-editedcd2

If I did my math correctly in the CD calculator, the total amount the 6/96 CD will be at final maturity in June 2026 is $58.66.  That’s only $6.86 difference from where it is sitting now at $51.80!  Bummer!  But if I cash it out and add it to my checking account with the 4% interest rate and compounded monthly, the total would be $76.75…a difference of $18.09!!  Sounds like a good move to me.

I decided to do the math on the 4% interest CDs as well…

cd4cd3-edited

Not much of a difference…but every penny counts!!

Based on this math I have decided to go ahead and start cashing these babies in.  A few words of caution:

1. If you haven’t been paying taxes on your interest yearly (who would??), you have will now be subject to paying federal income tax on the interest earned.  You should get a 1099-INT from the bank that you redeem your bond at.  For more information about taxes and electronic bonds you can visit the Treasury Direct website HERE.

2.  When cashing in your bonds, pay attention to the date!!  Your money has been working hard (and slow) – do not give up the last 6 months of interest by cashing them in a day too soon.  The bonds accrue interest every 6 months.  If my next accrual date is 10/2016, the date the interest is added is the first of that month.  If I cash my bond in on September 30th, I lose all interest that would have been given had I waited that extra day.  It may be pennies but, remember, a million dollars starts with one cent!!   **See Update below…

So what do you think?  Any other ideas for these bonds of mine?  Do you have any hanging around you’re thinking about cashing in??  Let me know your thoughts below! 🙂

Until next time…

** UPDATE – Today (3/15/17) I finally cashed in my bonds!!!  I cashed them all in at once…I figured I am losing money by not investing them so it was time.  That being said, if you only have one or two you might as well wait for the extra few pennies.  Do as I say not as I do…  My 11 bonds spanning from 9/91 – 9/2000 gained $468.52 in interest with the redeeming value being $743.52.  Yeah!!!  I will have to pay taxes on the interest in my taxes next year but in the meantime that money is headed straight for VTSAX.  🙂 **

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6 thoughts on “Savings Bonds – To Cash or Not to Cash

  1. It seems like you have done the math and it makes sense on paper. I’m not as familiar with savings bond but I don’t believe that savings bonds are subject to state taxes. You may consider factoring that into your analysis to confirm it still makes sense. Otherwise, really great job in analysis.

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    1. The EE bonds are not state tax or local taxes, only federal. Even with the federal tax I still believe it makes sense. I would have to pay federal tax o. the interest earned whether I cash them in today or at a later date. At least if I cash them in now I can have them working for me with a bit more control than if I leave them put. Now I have to time the cashing in so as not to lose any interest! 😅 Thanks for stopping by! 🙂

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    1. Hi Caitlin!

      I use my company credit union but, unfortunately, it is only open to employees or their families. I suggest checking around with BankRate to see what other options there are. I remember being in Wisconsin and seeing a 2% rate for an online bank but for the life of me I can’t remember the name!! Let me know what you find out. 🙂

      Thanks for reading!

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  2. Dan

    I apologize for the late reply but I’m faced with a similar situation regarding cashing in EE bonds.

    If I were in your situation, I would only cash in the bonds without the 4% floor. The reason is twofold:

    1) You do not have to pay taxes on the interest earned by EE bonds until you redeem them. That makes the 4% earned by the EE bonds tax deferred whereas the 4% earned by your interest earning checking account is fully taxable. The additional interest earned through monthly compounding is likely outweighed by the time value of taxes paid.

    2) Your bank can change the 4% rate at will whereas the 4% floor for the EE bonds is as solid as the federal government. Which is more likely? US Treasury removes the 4% floor or your credit union reduces the 4% interest rate or creates additional requirement to earn 4% (minimum balance, minimum dollar spend, minimum debit card transactions, etc.).

    You may be interested in this product. It’s a prepaid card which can link to a savings account paying 5% APY up to $5000.

    http://www.doctorofcredit.com/insight-5-apy-prepaid-card-5000/

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