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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