Cashing In Savings Bonds Early: Is It Worthwhile?

I have four $100 (face value) Series EE savings bonds sitting in my safe right now. Every time I open up my safe and peek at them, I would wonder what they were worth and whether that money could be put to better use somewhere else, but then I’d just close the safe and not think about it.

Today, I opened up my safe and examined the four bonds, then headed off to Treasury Direct to see what they were worth. Here’s the data:

One EE bond, worth $51.20 if I cashed it in right now, earning 3.2% interest.
Two EE bonds, worth $51.36 each if I cashed them in right now, earning 3.2% interest.
One EE bond, worth $51.84 if I cashed it in right now, earning 3.5% interest.
A total value of $205.56, with $5.56 in interest year to date.

Right now, I’m only on the hook for $5.56 in taxable income with them, which is trivial, of course. These numbers do include the three month penalty for cashing in early.

So, is it worth it to crack the bonds now and put the money in a high-interest savings account? The earnings benefits are pretty obvious: I would earn roughly an extra dollar per year by cracking them now and putting the money into ING or HSBC. The bonds are arguably a more stable investment, since their interest rate is locked in, plus they’re easy to just forget about and sit on if they just sit in the safe.

My feeling is that at this point in my life and given what I’ve learned about investing and money management recently, I’m better off if I cash in the bonds, pay the small tax amount, then put the money into a high-yield savings account. This is not to say that savings bonds aren’t a great gift for young people, but with young people they are a tool to teach about stable long-term investing. For me right now, I think I’m better off earning more. Comments are very welcome here.

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  1. MoneyFwd says:

    I think I would cash it in and put the money in a high-yield savings account, or possibly a CD if you can find one that you can start with just $200 or so.

  2. Mike says:

    There is one consideration in favor of savings bonds — the interest is tax-deferred until the bond is cashed.

    On that basis, I keep my emergency fund in savings bonds, on the theory that if I need to tap the fund I’d be in a lower tax bracket (such as if I lost my job and couldn’t find another right away). Does that advantage outweigh a difference between 3.25% and 5%? Probably not.

    In my case, I have some I-bonds where the fixed part of the interest rate is in the 2-3% range, to which the inflation adjustment is added. Right now I plan to keep those until needed or I retire, whichever comes first.

  3. Dunstin H says:

    So this is an old post. But I did a Google search with this exact question in mind. Sure, I am making a stable 3.2 – 3.6% interest with my Bonds, but is probably lower than inflation right now due the recent Fed rate cut. So if I look at it from that angle, I am losing money with my savings bonds.

    Contrarily, if I cash in my bonds and deposit them to my emergency account (HSBC Direct – 5.05%), I will make a higher interest rate, the asset will be more liquid, and it will be FDIC insured (once again, backed by the government).

    I think it is a good idea to scrap bonds and go with high yield FDIC insured savings accounts.

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