What to Do With Childhood Savings Bonds
Savings bonds—once the “responsible” go-to gift for baby showers, birthdays, and graduations—have fallen out of fashion. Still, as a millennial or Gen Xer, it’s entirely possible to stumble across a long-forgotten pile of paper savings bonds and wonder what to do with them.
What is a savings bond?
A savings bond is a loan to the U.S. government that can be redeemed with interest in the future. Savings bonds were introduced during the Great Depression to help stabilize the economy and give Americans a safe place to stash their money.
There are two types of savings bonds that are currently issued:
Series I Bonds: These savings bonds, which were introduced in 1998, have a small fixed interest rate plus a variable rate that fluctuates based on inflation.
Series EE Bonds: These savings bonds are guaranteed to double in value if held for 20 years and can continue to earn interest for an additional 10 years.
What should I know about my savings bond?
Before deciding what to do with a savings bond, you’ll want to know a few things about it:
Interest Rate: The interest rate on your savings bond depends on what “series” it is and when it was purchased. If the interest rate is not competitive with today’s rates, that would be a reason to consider cashing in your bonds.
Maturity Date: When the savings bond reaches maturity, it stops paying interest. If your savings bonds have reached their maturity date, you’ll receive no further financial benefit from leaving them as is. Nearly half of savings bonds held by Americans have matured and a no longer earning interest.
Current Value: This is the amount your savings bond is worth today.
You can find all of this information by entering details about your bond in the Savings Bond Calculator on TreasuryDirect.
How do I cash out a savings bond?
Many banks or credit unions will redeem a paper savings bond, but some have restrictions around the maximum face value that will accept or require the bondholder to have an account with the bank for a certain period of time. Call your current banking institution or others locally to find out their criteria.
Alternatively, you can cash your savings bond through the Treasury by mailing the bond and FS Form 1522 to the Treasury Department address listed on the form. If you are cashing a total of $1,000 or more, you’ll need to get your form notarized.
What should I do with the cash from my savings bond?
There is no one right answer to this question, but here are some ideas to consider:
Invest it: If you want this money to continue to grow for you into the future, invest it in a Roth IRA (if your income is within the limits) or a taxable brokerage account. If you invest the money in a diversified ETF or index fund, you will likely see even higher returns than you received from the savings bonds.
Save it: Use the cash proceeds from your savings bonds to start or supplement your emergency fund. Open up a high yield savings account to ensure you’ll earn a competitive interest rate.
Pay down debt: If you have any credit card debt, you put that cash to good use by paying down your balances. While you won’t earn interest that way, you will pay a whole lot less of it!
Enjoy it: Many people received savings bonds as a gift from a loved one. There is nothing wrong with spending that money on something you value, especially if it honors the person or people who gifted you the savings bonds.
What if I’m not ready to cash out my savings bond?
As of 2012, savings bonds are only issued electronically through TreasuryDirect. If you have paper Series EE or Series I savings bonds that are still earning interest and you’re not ready to cash them out, you can convert them to electronic form. This has several benefits:
You eliminate the risk that they get lost, stolen, or damaged.
You’ll automatically get paid out when they mature and stop earning interest.
You can easily check the value of your bonds and cash them out before their maturity date if you decide in the future to do so.
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