US savings bonds: How safe is $20K in bonds


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Dear Dr. Don,
I have approximately $20,000 in savings bonds. Given the state of the U.S. economy, should I cash them in? How safe are they if the economy tanks, the U.S. goes bankrupt or the country gets a serious credit downgrade?

— Kathi Creditor

Dear Kathi,
I have good news for you. Short of the virtually unthinkable, your savings bonds will be there for you. Let’s put it this way: If the absolute worst-case scenario were to develop, the status of the savings bonds will be the last thing you’ll be thinking about.

They’re backed by the full faith and credit guarantee of the U.S. government.

A free tool is found online

If you don’t know what you have in your savings bond portfolio, I’d suggest inputting the bonds into the Savings Bond Wizard; a free download is available at the TreasuryDirect website. Some of those bonds may have yields of 4% or more. Income-hungry certificate of deposit investors would love to see yields like that, and they may offer you a good deal.

If you’ve been deferring paying income tax on the interest earnings, redeeming your savings bonds will trigger a hefty tax bill. That bill will come due eventually, since the tax must be paid when the bonds mature. But you may want to continue to defer income taxes on this investment.

The cash equivalent?

How would you invest the money if you cashed in the bonds? A Federal Deposit Insurance Corp.-insured bank deposit is backed by the insurance fund and the U.S. government, so you’re not better off with that cash investment. Stocks or bonds carry much more risk, including if the economy tanks and the country tanks with it.

You’re right to be concerned about your government’s ability to fund its obligations, at least in the long term. But I don’t think that cashing in your savings bonds to keep your money safe is a smart course of action.

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