Is it Time to Redeem Your Old U.S. Savings Bonds?

When I was growing my grandparents would always give me savings bonds as gifts for birthdays and holidays. At the time, I wasn’t truly enamored with receiving a piece of paper essentially amounting to an “IOU” in the amount of $50 or $100 as a gift. After all, what money hungry kid wants a promise to receive a certain dollar amount in the future rather than actually receiving the cold hard cash right then and there? The answer is probably none, unless that child has done his homework on the power of interest and has the rare ability to think about the future instead of being focused solely on the present.
Anecdotes about my childhood aside, I was cleaning out some old files and happened to stumble upon those savings bonds I received as a child that I had completely forgotten about. This got me thinking about the value of those savings bonds today, whether they were still earning interest, and whether I should redeem them for cash.
The Principles of Savings Bonds
The two most popular varieties of savings bonds are EE bonds and I bonds. EE bonds pay a fixed interest rate for the 30-year life of the bond, where interest is compounded semiannually. The purchaser of the savings bond pays half the face value of the bond at the time of purchase, and the bond reaches its face value at a later date, which is determined by the interest rate of the savings bond. Keep in mind, EE savings bonds continue to earn interest even after reaching face value, up until 30 years after the issue date.
I bonds are a little different than EE bonds. I Bonds have an underlying fixed rate, which is determined at the time of purchase, plus a second rate equal to the level of inflation. Interest is compounded semiannually. Like EE bonds, I bonds are purchased for half the face value of the bond at the time of purchase and will earn interest for 30 years.
Bonds No Longer Earning Interest
As previously noted, savings bonds will continue to earn interest up until 30 years after the issue date. If you own E bonds or H bonds (bonds not discussed here as they were last issued in 1980 and 1979 respectively) they’ve all stopped earning interest. EE bonds purchased prior to September 1986 have stopped earning interest, and all I bonds are still earning interest, as they were introduced in 1998.
What Your Bonds Are Worth
The easiest way to check the value of your paper savings bonds is through the Treasury Direct Savings Bond Calculator. Simply enter the series (EE or I), the denomination (or face value) and the issue date. The calculator also allows users to save their inventory so they can periodically check the value of their savings bonds without entering the savings bond information every time.
How to Redeem Savings Bonds
You can redeem paper savings bonds at most banks. Most banks will redeem an unlimited amount of savings bonds for account holders, while non-account holders may be subject to daily redemption limits.
In 2012, the U.S. Treasury stopped issuing paper savings bonds and switched to electronic issuance. If you have electronic savings bonds, log in to your account at and follow the instructions for redeeming bonds. The redemption amount can be credited to your checking or savings account within two business days of the redemption date.
Keep in mind, savings bond interest is subject to federal income tax, but is not subject to state or local income tax. After redeeming your bonds, you will receive an IRS 1099-INT form reflecting the taxable gain amount.
Should You Redeem Your Bonds?
The bottom line when it comes to redeeming savings bonds is each situation is unique depending on the bondholder’s personal situation, as well as the characteristics of the savings bond (i.e. interest rate, issue date). Savings bonds that are no longer earning interest should be redeemed and invested in a vehicle that will generate a greater return, but bonds that are still earning interest should be carefully analyzed before action is taken.
For more information on savings bonds and potential redemption strategies tailored to your financial plan, please contact the Upswing Advisor team.