Which of my Savings Bonds should I cash in?
Monday, December 20th, 2004
Categorized as: Cashing in US Savings Bonds
I have to cash in some savings bonds. To decide which ones to cash in, do I use the rate or the yield? Is it better to cash in the most recent ones having earned little interest or older ones?
Tom’s response
It’s a great idea to take some time to figure out which of your Savings Bonds to cash first. Readers of my book, Savings Bond Advisor, have access to an exclusive Alert Recommendation for each savings bond issue date that can help you make this decision.
In general, cash in the ones with the lowest rate, which compares how your bonds will do in the future. The yield is the bond’s lifetime yield, which tells you which ones did best for you in the past, but often the ones with strong past results will have weak future results because of the way rates are calculated on older bonds.
If you have EE bonds that were issued within the last five years, try to get as many as possible to the five-year mark before you cash them. This often means cashing the ones you purchased most recently first.
For I bonds, cash the ones with the lowest fixed-base rates.
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Tom Adams
The Alert Recommendation has been extremely helpful in deciding which bonds my family wants to cash. My parents have bought EE bonds since 1985, and we’re finally using them to pay for medical school. Since the fifth edition of your book was released in the beginning of 2007, I was wondering if any of the Alert Recommendations have changed. I’m trying to cash the Mar 93- Apr 95 first, since they have the lowest grade, but I was wondering if things have changed. For example, has enough time passed to push the March 1993 bonds into the May 84- Feb 93 category, which I would want to hold on to longer. Thank you so much!
Hi Vincent – I’m glad to hear you’re finding the Alert Recommendations useful. The information in that table is still accurate.
The categories are based on characteristics of the bonds that don’t change – in other words, they aren’t going to move from one category to another as time passes.
Tom Adams
I have some EE bonds I want to redeem that range from 1998 to 2005. I noticed that some of the newer bonds have better rates than the older ones. Would you recommend I cash in the older one first? I also noticed that some months have a “rate now” higher than both the months before & after it. Any idea why?
Clyde
Clyde – All of your bonds were issued under the same rules, so in terms of earning potential they are all the same.
However, remember there’s a penalty of three months interest when you cash bonds that are less than five years old, so it would be better to start by cashing in the ones that are older than that.
Tom Adams
If you purchase a savings bond at a specific rate, does that rate prevail through the life of that bond or does it change when interest rates change?
Jim – It’s not clear whether you’re asking about new bonds or a bond you already own.
For new EE bonds, the rate is good for 20 years, then the Treasury can change it for the final 10 years. For new I bonds, the fixed base-rate is good for the life of the bond, but the inflation component – which is the major part of the earnings – changes every six months.
Tom Adams
Tom, I have to cash in some series EE savings bonds purchased between 1987 and 1999. The rates and yields are lower on some than on others. Should I cash in the lower rate ones first? How often does the interest accrue and the rates change on these bonds?
Barbara – The info on accrual and rates is here. The info on which to cash in first is in my book, as discussed above.
Tom Adams
Savings Bond Wizard shows the “Rate” of several of my bonds simply as “NA.” This designation is applied to bonds with issue date ranging from 2002 to 2007, both EE and I bonds. I can’t see any logic to it, but please shed any light you can. Thanks a lot
James – you need to update the Savings Bond Wizard database every six months. Look through the menus for an Update choice. You should be online when you select it, as it automatically goes out to the Treasury’s web site and gets the latest data.
Tom Adams
Hey Tom. I have another question about cashing in bonds. Again, I’m trying to decided which bonds to cash to pay for school. In trying to compare I bonds with EE bonds, I was trying to hold onto I bonds with an alert recommendation of “B” because the current interest rate is better than my EE bonds of the same issue date, which have a higher grade. For example, an August 2003 I bond has a 5.97% interest rate, whereas an EE bond has a 2.74& rate. Am I thinking about this the wrong way? Should I cash the I bonds first? Thank you again so much!
Vincent – You are correct to take the current financial context into account when using those tables. Under today’s circumstances, with high I bond rates and low rates for all other government securities, I’d give all the I bonds an extra half-letter grade in comparisons to EE bonds.
Tom Adams
Tom, I am trying to decide which bonds to cash, and I was wondering whether you could help me understand the high grade given to May 97 – May 03 EE bonds. In comparing these EE bonds to my May 03 – Oct 05 I bonds, it seems like they usually have a lower interest rate and yield (until now of course!). I am leaning toward cashing in my I bonds because of the zero percent interest they will earn for six months, but I wasn’t sure whether it might be better to cash the EE bonds. In comparing an I bond and an EE bond bought from the same month and year, the I bond is worth more. Thank you.
Chi – the May 97 – May 03 EE bonds are guaranteed to reach face value in 17 years, which is an implied interest rate of 4.12%. That’s what makes them better than the later bonds. If you can’t hold them that long, then that would change the rating.
I think you’ll get the best return if you keep the I bonds as long as possible and cash in the EE bonds as necessary.
Tom Adams
My son received a US Government Series EE bond in his name upon his birth in early 1990. It was a $50.00 bond. It was a gift to my husband from the company he worked for. I’ve kept the bond at home for all these years.. and just came across it again. My husband is now deceased and I’m not sure about the status of the company he used to work for who brought the bond as a gift.
My son is entering his sophmore year in college and now age 19. Since I’ve held it for so long, I think it may have earned some value and it just might surprise him when I tell him about some help with his college expenses.
Is this a good time to cash in on it considering the state of the economy, or should he wait? What’s the value of it right now? I read something about if it was issued in his name, he needed to be age 24 to redeem it.
Hi Elise – a $50 EE bond cost $25 to purchase. The interest paid has more than doubled the $25, so the bond is now worth more than $50 – but not a whole lot more. You can use the calculator at the top of this page to determine the exact value.
I think your son should cash the bond before it’s forgotten again. I don’t know where you heard he had to be 24; there are no age limits of any kind with Savings Bonds.
Tom Adams
We need to cash some Series EE bonds for my son’s college expense. They are in his name and issued between 1990-1996. Many are worth more than denomination (ie: purchase price $50 -100.00 bond now worth $128). Many of these have higher interest rate than others that are not at denomination value yet. Should we cash in lower interest rate bonds even if they are not at denomination value yet or cash in the ones that have already accrued and have higher interest? We will wait until the next interest cycle to cash in any. Also, our son is 19 and has been working so he will file taxes. Thank you.
JC – this is a complicated question. My book devotes a lot of detail to it. You have to consider interest rates, early redemption penalties, and when the bonds might reach face value. There’s a table in my book that gives each issue a letter grade. You cash in the bonds with lower grades first.
Tom Adams
My three children have E,EE bonds purchased by adults,in the children’s name only. All of these kids could really use the money now for college expenses,as well as getting started after graduation. Since this is the lowest income level that they will probably ever have, would it make sense to cash them in now, rather than later, when their income is higher? Will they pay less taxes now, or is it the same no matter what their income is? If this unearned income is the only income they had this year, will they still have to pay taxes on it?
Susan – You save money for a rainy day and that’s what the current economy has provided us.
Yes, it makes terrific sense for your kids to cash the bonds now, when they need the money and they have little other income.
Income tax rates are graduated. Everyone pays the same tax on their first dollar of income (which is nothing, by the way). Higher levels of income are taxed at higher rates.
Assuming you claim a child as a dependent on your tax return and the child has no other income, the child doesn’t even need to file a tax return – much less pay tax – unless the Savings Bond interest is more than $900.
Here’s more information on tax rates.
Tom Adams
I have a bunch of series EE bonds that were issued in 1994 and some in 1997. I am wondering when to cash these bonds….when do they reach their full amount? I can’t seem to find a straight answer. It has been 15 years on some of them and 12 years on the other. Please help.
Thank you.
Sally – EE bonds earn interest for 30 years. So the maximum value of your bonds will be reached on their 30th anniversary.
However, if by “full amount” you mean face value, see this post on Savings Bond original maturity dates.
Tom Adams
Tom,great site
I have EE bonds I started buying monthly in 1980 and the first one just reached 30 years, that one with FV of $200 cashed out apprx. $670 with interest of $470. Is there any option I have to roll these into other bonds rather than cashing them and paying the taxes on the interest in that year? thanks
Mike – no, there is no option like that. Series HH bonds used to allow that, but those bonds were discontinued in 2004.
Tom Adams
Since the demise of the HH option is there any other way to defer tax on redeemed mature 30+ year old bonds? Would I be better off letting them sit w/o interest until I’m 65?
Carol – there is no option to defer the tax. There are two reasons to cash the bonds now.
a. The IRS says the tax is due in the year the bonds stop earning interest whether you cash them or not.
b. What’s going to happen when you’re 65 that will change things? Do you expect your income to be lower then? If so, you can do the math and see how much you’ll save on taxes versus how much you’ll lose in interest by giving the government an interest free loan until then. Typically when you do these calculations reinvesting is the better choice.
Tom Adams
My 19 year old son has bonds that we want to cash for college. I am the beneficiary to him on the bonds. Can I cash these in for him since he is now an adult? Thanks
Mary Ann – No, the POD cannot cash a Savings Bond and he’s too old for you to sign as a custodial parent. He will have to cash the bonds himself.
Tom Adams
Hi. I have 17 Series EE savings bonds ranging from 1983-1999. I’m a little confused about how they accrue interest. I used a bond calculator and most of them are at a rate of 4.0. I do not currently need the money, but want to know if it is best to leave them as a bond or to cash them in and put them in a savnigs account or IRA. Help.
Jo – Have you looked at the interest rates paid by savings accounts lately? They are near zero. Meanwhile, you’re getting 4%. You’d be much better off to study up on Savings Bonds so they don’t confuse you. You can do that here on this web site or you could spend a weekend reading my book.
Tom Adams