Buried treasure?
Treasure in Series E bonds? Don't scoff, says Public Debt spokesman Pete Hollenbach.

"We're talking about 20 million individual bonds, which is less than three-quarters of 1 percent of all of the bonds that have matured, so 99.25 percent have been cashed in," he says. "The biggest chunk of that $7.3 billion is accrued interest. Some of these people are sitting on bonds that are worth up to 10 times as much as they paid for them."

For example, if you paid $75 for a $100 bond back in April 1960, your bond could be worth $770 today.

What kept you?
Dan Pederson has two words for Treasury's public information blitz: about time.

Pederson, author of Savings Bonds: When to Hold, When to Fold and Everything In-Between, supervised the savings bond division of the Federal Reserve Bank from 1986 to1990. He left to start the Savings Bond Informer, a company that provides customized reports for bondholders who want to keep current on their holdings.

He's been after the bond program for years to issue maturity bulletins.

"Since the 1941 savings bonds stopped earning interest in 1981, they could have put out this bulletin any time during the last decade," he says. "But if I gave you a $7 billion loan interest-free and all you had to do was say nothing about it in order to keep using it, what would you do?"

Nonetheless, he applauds the maturity bulletin.

"It's a good move on their part. It's long overdue and it's important that the bond owners find out about it."

Cash 'em or roll 'em
If you are holding matured bonds, you have two options:

• Cash out: You may sell your bonds at any bank or thrift, report your interest to the Internal Revenue Service on a Form 1099, take your money and run, or:
• Roll them, if you qualify: If your Series E bonds matured less than a year ago, you can roll them into Series HH bonds. Advantage: It will give you up to 20 years of additional deferral in reporting the interest you have already accrued. Disadvantage: HH bonds only pay a flat 4 percent interest rate the first decade and they kick interest payments to you every six months that must be reported as interest income.

"The only way that an HH makes sense is if you need a short-term deferral parking lot," says Pederson. "Say you're in your last year of employment and you're in a high income bracket right now that might drop after retirement. You might want a short-term parking lot for a year or two, just to get the deferral out there where you can take it when you have less income.

"Ten years at 4 percent doesn't excite me, but a year or two in order to maybe drop from a tax bracket of 28 percent to 15 percent, that could have a significant impact."

A Sixties switch
The change in bond maturity terms in the mid-1960s resulted in the sudden growth of the matured bond coffer. World War II war bonds, peace bonds and Vietnam War-era baby boomer bonds through November 1965 earned interest for 40 years; after that, bonds matured in 30 years.

"For the last five years, all the bonds sold in the late Sixties have reached their final maturity. Most bond owners assumed these were 40-year bonds; they don't realize there was this time period where they switched over to 30-year bonds," says Pederson. "That's why this pot has grown. It was only $2 billion back in 1995. It has grown over 300 percent in the past five years."

According to Hollenbach, war bonds sold at slightly above-market interest rates and were considered equal part patriotic gesture and sound investment. In the Vietnam years, bond rates were generally competitive with savings accounts. Bonds remained a popular investment vehicle, with $180 billion sold.

The bonds they are a'changing
But times and bonds have changed, says Pederson.

"The backbone of the bond program over the years has been payroll deduction; over half of their sales come from payroll deduction. Back in the Sixties, you may have had one or two options other than the payroll saving plan; now, you have a cafeteria of 20 or more investment options, and even options within those plans. Savings bonds certainly have a lot more competition than they had 30 years ago."

Enter Treasury's Series I inflation-indexed bond. The I bond rate is currently 4.08 percent --1.6 percent of that is fixed. It is tax deferred.

Oh, and if you buy -- you might want to make a note of the maturity date.

-- Updated: Nov. 6, 2002