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Know rate before cashing savings bond

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Dear Dr. Don,
We have 113 EE savings bonds in $100 and $200 denominations and issue dates ranging from 1991 to 2002. We would like to cash in some for our son’s education but none has reached its maturity date. How do we determine which ones to cash in? Do we go by the interest rate or the yield percent?
— Sheila Savings

Dear Sheila,
Savings bonds can no longer be redeemed in the first year of issuance, and there’s an early redemption penalty if the bonds are redeemed in the first five years of issuance. Your savings bonds are all past the early redemption penalty. That means you can cash them in whenever you like — you don’t have to wait until the savings bond matures.

Series EE savings bonds earn interest for 30 years. The oldest of your bonds still has another 10 years until final maturity. Series EE savings bonds are guaranteed to double in value in 20 years.

If you qualify for the education tax exclusion, the interest earnings on the savings bonds won’t be taxed when you use the funds to pay for qualified education expenses. The “Education Planning” Web page on the TreasuryDirect Web site explains the education tax exclusion and the requirements to qualify for it.

There are different approaches to determining the interest rate for your bonds depending on when they where purchased. The TreasuryDirect Web site explains the different approaches on its “EE/E Bonds Rates & Terms” Web page. The categories are shown here:

I’d suggest inputting your bonds into the Savings Bond Wizard, available as a download from the TreasuryDirect Web site. You’ll be able to see how the 113 savings bonds in your portfolio have performed over time, the rate they’re currently earning, and the next time a bond is scheduled for a rate change.

Don’t leave money on the table by redeeming a bond before it’s scheduled to receive an interest payment. The TreasuryDirect Web page “When Interest is Added to Your Bonds” explains the different approaches, again based on when the bonds were issued.

In deciding which bonds you want to redeem to pay for your son’s education, consider current and expected future interest rates, not the historical yield.

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