Time to cash in savings bond
Must or should you cash in a Series E savings bond at its 30-year peak? If so, can you roll it over into a CD or other investment without having to pay taxes on the interest? Do you have any other suggestions as to what to do with a 30-year-old Series E bond?
-- Karen Compounding
Two things happen when a savings bond reaches its final maturity. First, it stops earning interest. Second, if you deferred paying federal income tax on the interest, all of the bond's interest earnings become taxable -- even if you don't redeem the bond. So there's not much point in not cashing in the bonds when they reach final maturity after 30 years.
You used to be able to exchange Series EE/E savings
bonds for Series HH/H savings bonds, but the government stopped
issuing Series HH/H bonds in September of 2004. The Treasury Direct
Web site has a page that answers the question, "Are
Your Savings Bonds Still Earning Interest?"
and explains the federal tax impact if they are not.
So cash in the bond and reinvest the money. Where
you put it depends on when you expect to need the money and how
you feel about risk. An insured certificate of deposit, like a savings
bond, doesn't have any risk of losing principal, but unlike a savings
bond you can't defer taxes and you'll owe any state and local income
taxes along with federal income tax on the CD interest income. You
in your market or nationwide on Bankrate.
Beyond protecting principal you want to preserve the
purchasing power of this investment against inflation. If you want
look back to see how 30 years of investing in a savings bond compares
to 30 years of inflation, go to the Bureau of Labor Statistics Web
site and use its CPI
Inflation Calculator to see what $37.50 from 30 years ago can
buy in today's dollars. Why $37.50? That's what a $50 face value
Series E savings bond purchased in November of 1976 cost.
It takes $134.12 in today's dollars to buy what $37.50
could buy in 1976. Using the Savings
Bond Wizard you can see that the bond is worth $275.30 at maturity
with $237.80 of that as interest earnings. If the applicable marginal
federal income tax rate is 25 percent, there's a tax obligation
for about $60 in taxes leaving $215 to reinvest. You can input the
particulars of your bond(s) to find its value.
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."