This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

What To Do With That Old Savings Bond?

Depending on your age, your birthdays may have included a card from Grandma and Grandpa with a savings bond tucked inside. Your parents would beam; you would silently sigh and move on to the next -- and undoubtedly cooler -- gift.

In the days before 529 plans, savings bonds were the go-to gift of choice for grandparents and parents hoping to help save for college. With long maturity dates, the bonds were often stored away and sometimes forgotten.

"We see the shoebox pulled out when a child turns 17 and parents are trying to figure out how to pay for college," says Mike Mussio, a certified financial planner with FBB Capital Partners in Bethesda, Md.

Of course, savings bonds weren't only gifted to kids whose grandparents wanted them to go to college. Through workplace savings programs and tax refund incentive programs, many Americans have ended up with a stack of savings bonds.

With interest rates hovering just above zero, many may be asking if those bonds are worth keeping.

Interest rates for savings bonds

Like other savings vehicles, bonds come with both advantages and disadvantages.

"From a safety and liquidity standpoint, [savings bonds] are about as good as it gets," says Mussio. "From a return standpoint, they are not so great right now and haven't been for a few years."

"Not so great" translates to a 0.20 percent annual interest rate for an EE Bond purchased between May 1, 2013 and October 31, 2013. For comparison, some online savings accounts are currently offering interest rates between 0.75 percent and 0.85 percent.

"The problem is the return gets eaten away by inflation," notes Mussio.

While EE Bonds aren't making enough interest to outpace inflation, I Bonds offer an interest rate that is at least equal to the rate of inflation. These bonds may be a better option for those who like the safety provided by government-issued investments, but want to be sure their money is growing at roughly the same rate as the cost of living.

Savings bond tax advantages

As with most financial decisions, there is no one savings strategy that works for everyone. Mussio notes the decision to keep savings bonds or cash them in and reinvest them elsewhere can depend upon an individual's goals.

For college and retirement savings, 529 Plans and IRAs may offer better returns and tax advantages over savings bonds. However, they also come with added risk, and there may be limitations regarding when the money can be withdrawn or how it can be used.

Savings bonds, on the other hand, earn a guaranteed rate of interest and also come with tax advantages. While individuals must pay federal tax on the interest from bonds, that money is exempt from state and local taxes.

Keeping bonds vs. cashing them in

For individuals with a stash of savings bonds, Mussio recommends finding out how much your collection is worth before making any decisions.

"Getting a handle on what they are actually worth is a good first step," he advises.

Consumers can visit any bank to find out what their bonds are worth or they can look them up using the Treasury website.

Bonds stop earning interest after 30 years and at that time, they should be cashed in and reinvested. Buying more bonds is one way to reinvest that money, but online savings accounts, money market accounts and certificates of deposit are other options -- options that may pay more interest.

For bonds still accruing interest, individuals should consider what they hope to achieve with the money. Investors seeking a safe place to keep money without the expectation of large returns may want to keep the bonds. Those who decide to cash in their bonds may want to reinvest in another savings vehicle or use the money to pay down consumer debt.

When in doubt, the best way to make sound financial decisions is to consult with a professional who can review your specific situation and make personal recommendations. In the meantime, pull out that shoebox, head to the Treasury website and find out how much money has been sitting in your closet.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.02 0.00%
FB $104.07 0.00%
GOOG $683.57 0.00%
TSLA $162.60 0.00%
YHOO $27.97 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs