What to do with old savings bonds
I have a series of E and EE U.S. savings bonds from when
I was born to when I graduated high school. The former are soon to hit final maturity,
and all, except for one, have hit face value. I have more than six months
of emergency savings already, and have been shifting money into longer-term taxable
savings as well as fully funding a Roth IRA. I will contribute to my company's
401(k) once I'm eligible.
Am I better off taking the savings bonds
that are at or above face value and putting them into taxable savings? I know
I'd be taxed on the accumulated interest on them. Would I be better advised
to maintain these and slightly diminish my bank savings to the taxable mutual
I'm currently single and renting a home. While either or both
of those may change in the next five years, I have no current reason to believe
they will, so the extra risk (and hope of return) of the mutual funds seems justified.
Don't let whether the bond is at or over face value influence
whether you redeem the bond. Look at what it's currently earning, how the interest
rate is calculated on the bond and compare it to your taxable alternatives.
interest earnings from savings bonds are subject to federal income tax. The
advantages over a taxable account with a bank or brokerage firm are that you don't
pay state or local taxes on the earnings and you can defer paying federal tax
until the bond matures or is redeemed.
Once a savings bond
hits final maturity it no longer earns interest and the accrued interest becomes
taxable. Series EE savings bonds earn interest for 30 years. Purchased at half
their face value, they are guaranteed to be worth their face value after 20 years,
but can be worth face value in less than 20 years depending on the bond's interest
earnings. A savings bond earning 3.5 percent interest will double in value
in approximately 20 years.
Series E bonds earn interest and
mature in different cycles depending upon the original issue date. Series E bonds
that are still earning interest reach final maturity 30 years from their original
issue date. Series E bonds are no longer issued by the United States Treasury.
The Treasury Direct Web site has a page that answers the question, "Are
Your Savings Bonds Still Earning Interest?" If they aren't, then you
definitely want to redeem the mature bonds and reinvest the after-tax proceeds.
you don't have your portfolio of savings bonds listed in the Savings
Bond Wizard, you should. It'll keep track of interest earnings, interest payment
dates, maturity dates, rate and yield.
Rate is the current
interest rate; the reported yield is from issuance. You can also get current interest
earnings information from the Savings
Bonds Earnings Reports available on the Treasury Direct Web site.
you have a seasoned portfolio of savings bonds, these bonds could be all or part
of your emergency fund money, allowing you to reallocate emergency fund holdings
that are currently sitting in cash to an investment with a longer horizon, like
eligible contributions to a Roth IRA.
To ask a question
of Dr. Don, go to the "Ask the Experts"
page, and select one of these topics: "Financing a home," "Saving
& investing" or "Money."