Should I Cash My Savings Bonds?

by The Happy Rock on May 11, 2009

bond-savings-college-posterShort answer = Yes.

Let’s start with the basics first though. A US savings bond is note representing a US government debt. The government agrees to pay back the money you give them in exchange for interest paid to the bondholder when you redeem the bond. Currently in 2009 the savings bond rates are 0.70% and 0.00% for EE and I bonds respectively, so that makes them terrible investments right now.

Know that you know what you are dealing with, take them to the bank and get the bond value plus their accrued interest.

There are a few things to note:

  1. You will pay taxes on the income/interest) portion of the cash you get back.
  2. You have to wait 12 months from the date of purchase before you cash them.
  3. If you cash them before 5 years, you will forfeit 3 months of interest.

Even with those three negatives, it still makes sense to cash them.  When you do, I would personally use the money to get rid of debt.  The interest savings on your debt alone is usually enough to justify bond redemption, but I would also that there are much better investment vehicles than bonds too.  So hunt down those bonds from your childhood and cash them up.