The Savings Bond Dilemma: Cash Them In Now Or Wait?

While going through some boxes after the move, I discovered four Series EE savings bonds, each with a face value of $100. They were given to me during my high school and college years as gifts and I saved them for some future event – and basically forgot about them. I looked up the current value of these bonds and it adds up to about $240. These bonds earn somewhat varying interest rates, earning about 3.3% on average.

My question is whether I should cash these bonds in and use them for debt repayment, or should I put them back in the box and forget about them again. My gut instinct is to use them for debt repayment, but let’s look at each case.

Why I Should Keep The Bonds

I don’t need the cash. I’m in good financial shape right now, with only my student loan debts and house debts outstanding. These debts aren’t pressing – in fact, with my current monthly budget, I’m easily repaying all of them and debt snowballing away the student loan debts.

I’d be tempted to use the cash for something frivolous. One of my biggest weaknesses is spending “found cash” like this in a frivolous fashion. Part of me (a part that I largely have under control now, but it’s still there) would want to use it to buy a Wii game or something similarly frivolous.

I have to pay taxes on about $40 worth of income. The bonds were gifts long ago, but when I cash them, I owe taxes on the income of the bonds – about $40. This ends up being about $11 or so in the 28% tax bracket, so I would really only come up with about $229 in cash after the taxes.

Why I Should Cash The Bonds

There’s really only one big reason for cashing them. The bonds earn only 3.3% – I can beat that in a savings account, let alone on debt repayment. The return on these savings bonds is pretty subpar. Cashing them in now would let me make 5.05% if I put it in an HSBC Direct account, or 7% if I used it to repay a 7% debt. That’s far better than in bond form.

For me personally, the one reason to cash them in trumps the reasons not to cash them in, provided I take that cash and immediately apply it to my debt. Otherwise, I may be tempted to spend it on something I don’t really need.

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  1. What if you cash in the bond and put that money into something that is tax sheltered like a 529b account or an IRA of some sort? I would think that might help you use the money that was a gift from school for school for your kids.

  2. Bobby says:

    If you use the savings bond to pay your student loan, do you have to pay tax on the interest you earned on the savings bond?

    I know if you pay the tuition directly, you don’t have to pay taxes on the savings bond interest. I’m not sure if you do paying a student loan.

    There’s a Education Savings Bond Program you may want to read about from the IRS.

  3. Kenny says:

    Trent,

    You reminded me of a small pile of savings bonds I have accumulated over the last ten years due to one of those “savings bonds rewards” credit cards.

    I think I can convince my lovely wife to let me use those to so we can buy one of those Wiis. You for sure have increased my interest in them.

    Or maybe we ought to use them to pay off the furniture. That’s the only little debt we have left, but it’s on that “no interest” plan for the next 15 months or so.

    Perhaps we’ll compromise and do both!

    Thank you for your work.

  4. Hi Trent. How did you go about finding out the current value of the bonds? I have a $100 series EE that was issued in 1989, so I figured it was still only worth $100. Does it accrue interest this whole time? Hot Dog!

    I guess also, where would I cash it in if that’s what I wanted to do? Can I just go to my bank or do I have to go to a special location?

    Thanks

  5. Saving Diva says:

    A few years ago I cashed some savings bonds in and spend them on ridiculous things…I hope you are wiser than myself…

  6. Jen says:

    if you have savings bonds with a combined face value of $400, why are they only worth $240?

  7. Trent Trent says:

    EE bonds have a face value twice of what their initial value actually is. You can buy an EE bond with a $100 face value for $50 – it just won’t be worth $100 for quite a while (until maturity).

    I found out values at http://www.treasurydirect.gov

  8. Ted says:

    This is so simple Trent. For a site called “Simple Dollar” I find you really like to complicate things.

    Answer this: Would you tell any of your readers under any circumstance to go buy EE bonds if they found $240?

    Hell no. Cash the bonds.

  9. Steve says:

    Cash ‘em in and use the money wisely, even if you just plop it in a savings account. I’ve begged and begged my wife’s parents and grandparents to stop giving our kids EE bonds and make wiser use of their generosity, but they just won’t listen. When a plain old savings account can beat the interest a bond is paying, forget about the bond and maximize your return.

  10. Trent Trent says:

    Ted says “Would you tell any of your readers under any circumstance to go buy EE bonds if they found $240?”

    That’s actually an interesting question. I received these bonds as gifts from people and instinctually I tucked them away during a time in my life when I would usually spend every dime I got. In a way, it was a brilliant gift – I now look at them at a time in my life where I might make sense of them.

    If I found $240 and was going to make a gift of it to someone, particularly to someone who wasn’t particularly financially savvy, a savings bond could be a good thing to buy. They’re ubiquitous, flexible, and are just hard enough to break that it might keep that college student from cashing it in immediately.

    As an investment for myself, EEs are a pretty poor choice, but as a gift, they have some psychological merit.

  11. I guess my question was more do they keep accumulating value after they have matured. Someone gave me one when I was 9. It matured in 1999, and has just been sitting around. Will I only get $100 or does it continue to earn interest? I assumed it didn’t gain any value, but it’d be great if it did.

  12. Engineer says:

    I actually have part of my emergency fund in U.S Savings Bonds, a good part of which is in I-bonds I bought back in 2000 when the fixed part of the interest rate was over 3%. After inflation is added in, I’ve at times made 7% on them.

    For me one consideration is the tax-deferment on savings bonds, plus no state income taxes either. The tax on the interest is paid when cashed in, and my theory is that if I’m in a true emergency situation I’ll likely be in a lower tax bracket.

  13. js says:

    They do stop earning interest eventually. Usually after 30 years but you really should do further research. The government makes a decent amount of money off people who still hold EE bonds that don’t pay interest any more. Don’t let them rip you off! (although really they are fairly open about this fact).

  14. Jen says:

    OK, so you’re thinking of cashing in bonds that have not matured yet. That’s the part I missed.

    I say keep ‘em. We’re only talking about $240 here. It’s not a large enough sum to worry about and not enough money to do anything super cool with. Think of them as an ultra-emergency fund and put them in the file cabinet.

  15. jtimberman says:

    Someone called into the Dave Ramsey show recently with exactly this question. Sort of.

    Some relative had given their children savings bonds for college. Total value was about $1000 at the time. The caller asked Dave what to do. After going over their financial picture, and discovering they had some credit card and other loans of their own, he recommended that they cash them in immediately and use that to start paying off debt. When the caller gets through Dave’s baby steps, they’d be able to cover the amount of these bonds easily without all the payments they had currently.

    Additionally, Dave asks a lot of callers a question similar to this: “If you didn’t have any debt, would you go borrow $X to invest in (bonds|mutual funds|real estate|single stocks)?” The answer is usually no, if the person is paying attention. Sometimes people will try to argue about higher interest rate on the investment than on the debt, and that always gets beaten down :-).

    So Trent, cash in the bonds and write a principal payment check for the next lowest debt in your debt snowball :-).

  16. KiranG says:

    There was a competition in high school that I competed, in economics actually, and my team went to nationals and my winnings were 2500 in EE savings bonds (only worth 1250). I figured it would be some great mad money for the future, but I eventually forgot about them. Come my senior year at college I found them, and figured they would be great for paying for a Vegas trip after graduation.

    In the end I just did the boring thing and it simply became the first 1495 dollars of an emergency account.

  17. plonkee says:

    Just thinking about the ‘would you borrow x amount to invest in…?’ argument. I actually did just borrow more than £80K to invest in real estate. I also borrowed in excess of £9K and put it into a high interest savings account. The thing that significantly decreased the risk of these actions is that I can pay back the loans solely out of my income regardless of whether or not my investments do well. Does no one else do these things?

  18. Gayle says:

    A little different sort of emergency fund is perfect for using savings bonds. For women who are in the dire straits of an abusive relationship it is an ideal portable savings account. They can be bought in relatively small increments and there are no interest statements arriving at the house or reportable on tax returns until they are cashed. That is they are easy to hide, but in your own name.

    As for what you should do Trent, use it for Christmas gifts.

  19. Rita says:

    So, what are you going to do?

  20. Michelle says:

    Thanks for writing about this. I actually have 5-10 bonds my grandparents bought me over the years, they’ve been sitting, forgotten, in a filing box. My family is in financial difficulties NOW. I think I’ll check on their values….anyone have advice on how to cash them in? Just take them to a bank?

  21. Ted says:

    plonkee the difference is you’re getting a positve return on your borrowing. Trent (and others) are borrowing at 6-7-8% (and some up to 20% on credit cards) to get 3% back.

  22. Kris says:

    I’m in a similar situation, with about $700 of matured bonds sitting in a dresser drawer, most from my first communion. I know these would make more money in a high-yield savings account, but it’s difficult giving them up. So many are from long-gone relatives, I’d like to do something really meaningful with them.

    What that is, I don’t know, but I have to agree with Trent – there are definitely psychological factors that may not be present with other money issues.

  23. If bonds have matured, they are not accruing interest. You should cash them and invest the money at a better rate or pay off debts.

    If they have not matured, and you have had the bonds less than five years, you give up three months of interest if you cash them. If you have had the bonds longer than five years, there’s no interest penalty.

    You can cash bonds at your bank. If you don’t have a bank account (credit union, etc.), call the Federal Reserve for information. They actually have incredible customer service. You send the bonds to them with a signature guarantee (have a bank or credit union manager “guarantee” your signature with their medallion stamp) and a letter telling them where to send the check.

  24. st says:

    >>Cashing them in now would let me make 5.05% if I put it in an HSBC Direct account, or 7% if I used it to repay a 7% debt. That’s far better than in bond form.

  25. st says:


    Cashing them in now would let me make 5.05% if I put it in an HSBC Direct account, or 7% if I used it to repay a 7% debt. That’s far better than in bond form.

    Isn’t it true that the 5% is a pre-tax return, and the 7% is an after-tax return? Essentially making the difference greater than suggested in the original post?

  26. conny says:

    my take on this is strictly economical.
    If the bond has a value lower then face value then this is interest to maturity. So the interest will be very close to a investment made now to a bond wit the same date of maturity. example if a new 10 year to maturity bond giving x in interest then a older giving only y but with the same ten year to maturity will have a interest of x to but the price of the bond will be lower to compensate to a interest of x.

    Most notable on this will be a zero interest bond.
    the time to maturity will give you the price. a ten year or a twenty year bond with the same maturity date will have the same price 5 year to maturity as a new 5 year bond at that time.what you gave for the bond in the past has no bearing here.

    So cash it for a new investment is probably not a god idea. Cash it for a lone payment with a interest higher then a new bond is sound.

    sorry for my bad language skills, this isn’t my first language.

  27. Karen says:

    What if a bank refuses to cash in savings bonds–I belong to a credit union and unfortunately they moved 70 miles from where i live so I am not driving there…I went to a bank and they said ok–then what was my acct number. They almost became hostile when I said I was not a customer. The head of their customer service came over and said they would do it just this once but never to come in again and ask- WOW and it was only for 300 dollars. I would have NEVER purchased these bonds if I knew I could never get to them in an emergency–any suggestions?

  28. Maureen says:

    I have a $10K savings bond from 1984. I believe it is worth about $15K now. I would like to cash it in to pay for our new van. Am tired of paying over $100 per month in interest (6.99%). Is this a good idea? I am concerned about having to claim all the interest this bond has accrued on my taxes for 2007.

  29. conny says:

    Maureen you have a bond that has given you less the 2 % a year and paying someone else 6.99. I am sure IRS will take less then 100% of your earning in taxes, so use the rest of the money to pay down your debt.

  30. carl turner says:

    i found 4 us savings bonds with a face value of $2700 dollars issue dtae was may 1979 the new value is around $12,000 but i dont know how to cash them and i aint ken to the woman who they belong to how would i go about cashing them is there like a seven year wait period or something

  31. dave says:

    carl, i have same problem friend gave me several series e bonds for my childrens college fund and has since passed away, am having major problems cashing them, i have been told i need to hire an attorney to petition his estate. if anyone knows a better way please help.

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