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Dust Off Savings Bonds

By Joel Dresang

Americans are sitting on more than 44 million unredeemed savings bonds that have matured and are no longer earning interest, according to U.S. Treasury figures.

That’s nearly $17 billion of uncashed bonds whose earning days are over, according to the National Association of Unclaimed Property Administrators, an affiliate of the National Association of State Treasurers.

If you’re among those with old savings bonds collecting nothing more than cobwebs, consider rounding them up, seeing what they’re worth and figuring out how they fit in with your financial plans.

In 1980, the U.S. Treasury began offering Series EE Savings Bonds  to succeed the Series E bonds, which tied back to the war bonds issued during World War II.

The 30-year anniversary of EE bonds marks the maturity date of the last of the E bonds. In other words, E bonds are no longer earning interest, according to the Treasury Department.

Also, it’s a reminder that the first EE bonds are maturing, meaning their interest-earning days are ending as well.

“Many people have the old Es and EEs, and there is a deadline date when they no longer will pay interest,” says Ron Hansen, vice president and advisor at Landaas & Company. “Some people are mistaken in their belief that they can hang on to them and that they continue to collect interest, and they don’t. They stop paying interest when they reach maturity.”

Real Money

Ron knows from experience that a lot of folks have old savings bonds buried in home filing cabinets and shoeboxes and sock drawers. He says it’s worthwhile exhuming those documents and treating them as real money, not relics.

“You have to dust them off and find out what their true value is and what part is taxable income,” Ron says. “Some may be past their interest-earning period and earning nothing, so it’s another good reason to look at them.”

Essentially, savings bonds act as loans by U.S. citizens to the U.S. Treasury. The government uses your money for a certain period while guaranteeing repayment in addition to interest when you redeem the bonds.

Series EE bonds pay market-based interest rates – currently 1.4% a year – for up to 30 years. (Another savings bond, known as Series I, combines a fixed rate with a twice-annual inflation adjustment.)

Upon redemption, interest on savings bonds is federally taxed as income unless it’s used under certain conditions for qualified educational expenses. The interest is exempt from state and local income taxes.

For more information:

  • TreasuryDirect has a free Savings Bond Wizard download that helps you manage your savings bonds, finds redemption values and interest earnings and prints your savings bond inventory.
  • The federal TreasuryDirect site also features Treasury Hunt, with information on savings bonds no longer earning interest.
  • To search for other money you might not know you have, the National Association of Unclaimed Property Administrators has links to individual state and provincial agencies as well as a combined database.

Fully backed by the government, savings bonds are relatively safe, low-risk investments. Traditionally, they have been popular gifts and savings vehicles for children.

But that means their owners, years later, often don’t have strategies for how the bonds fit in to their long-term, diversified investment plans or when to redeem them or what to do with them once they’re cashed.

Part of Your Plan

The first thing Ron advises is to round up your savings bonds and go to the government’s TreasuryDirect website to determine their worth and see when they mature.

After you know how much your bonds are worth and how long they’ll earn interest, consider when you should redeem them. Think about the best way to use the proceeds when you cash in your savings bonds – and remember that you’ll be paying taxes on the interest you earned.

“It doesn’t necessarily have to be at the end,” Ron says. “But people group them together, and they hang on and they hang on and they hang on. And then when they need some money, they redeem a group of them with a whole bunch of deferred interest.”

With planning, Ron says, you can try timing your savings bond redemptions to minimize your tax consequences or spread them out. You can try to use the cash to supplement retirement income and hold off tapping in to other investments.

At current rates, Ron hasn’t seen a lot of requests for savings bonds, but he knows that plenty of investors already have savings bonds they don’t know what to do with.

“We’re not promoting them as an investment,” Ron says. “But I try to help people unravel these situations.”

Joel Dresang is vice president of communications at Landaas & Company.

initially posted July 22, 2010

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