Savings Bonds - Know When to Hold ‘Em

Savings Bonds used to be a plain vanilla investment that you held onto be cause they combined low risk with a decent return. The playing field has changed, however, and many Savings Bonds are now prime candidates to be replaced by better investments. Others, however, are still paying competitive interest rates and should not be cashed in. Here are some tips from Savings Bonds experts on which bolds to hold and which ones should go.

Bond holders may not want to cash in bonds that are less than five years old because they will lose the last three months of interest when they do. Some bonds are paying so little interest, though, that cashing them in doesn’t cost much. Bonds issued on or after May 1, 2008, for example, are earning such low interest rates that losing three months interest is not a big issue. Bonds bought between May 1995 and April 1997 are also yielding a meager return. On the other hand, some older bonds are paying 4%, better than what most investments are yielding today. You may also want to hang on to any I Bonds you own. They pay a fixed rate plus a variable inflation rate, now set at 0%. When inflation makes a comeback, however, these bonds will be more attractive.

You should also look at your bonds to see if any are more than 30 years old. These bonds have stopped earning interest, plus, according to IRS rules, you owe tax on the accrued interest in the year they mature. If you don’t pay up on time, you could also owe penalties and interest. To find out how much your bonds are worth and see what interest rates they are paying, visit the Savings Bond Calculator

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