6 Smart Ways to Use Old Savings Bonds

By Qiana Chavaia on 30 December 2014 1 comment

Still hanging on to those old savings bonds your grandparents bought for you when you were a kid? If so, you're probably wondering what to do with them and how much they're worth.

Savings bonds are debt securities issued by the U.S. Treasury Department. If you own paper bonds, they are likely Series E, EE, or Series I Bonds, which in the past 30 years earned roughly 3.5% to 7.5%. If you're interested in calculating the face value of your bonds, use the Treasury Direct online calculator. Or, use the Treasury Hunt tool to determine if you were ever the beneficiary of a bond you don't know about. (See also: Receiving Your Tax Refund in Savings Bonds)

Once you know what they're worth, here's what you can do with your old savings bonds.

1. Hang on to Them Until the Maturity Date

Savings bonds were designed for long-term savings, so if you don't need the money now, you should hold on to your bonds until they mature before cashing them in. The maturity date is at least five years from the date of issuance and up to 30 years (the maturity is listed on your bonds). However, Series E/EE Bonds can be redeemed after one year and Series I Bonds after just six months. The early redemption penalty for cashing them within the first five years is forgoing the last three months of interest.

2. Convert Them to Electronic Savings Bonds

As of 2012, paper bonds are no longer available. Using TreasuryDirect's Smart Exchange you can convert your old paper bonds into electronic bonds by simply following the getting started resources on the website. This allows you to keep track of and manage your bonds online, plus it enables you to make any future bond purchases easily electronically. And it'll save you some time and hassle in the future when you choose to redeem your bonds.

3. Cash Them in and Invest

The best thing you could do is put your money straight back to work for you. After cashing in your bonds, reinvest the capital in the stock market. If your bonds are less than 30 years old and are still earning interest, they are likely underperforming the average annual stock market return. But unlike stocks, bonds are low-risk investment. To minimize some risk while still taking advantage of the stock market, consider investing in ETFs and mutual funds through your Roth IRA.

4. Pay for College, a Certificate, or Vocational Training

Cash in Series EE and Series I bonds issued after 1989 to pay for qualified education expenses, and you won't pay income tax on earnings. Educational expenses include all tuition and fees, including room and board, course materials, and other fees. Expenses can be for yourself, a child, spouse, or relative.

5. Locate Tax Records

If you were the recipient of a savings bond with or without a parent or grandparent listed as the beneficiary, to avoid income tax on accrued interest, the co-owner may have filed a federal income tax return for you as a child, in order to report investment earnings. And, because you were a child who did not cross the earned income threshold for filing a return, no tax would be due. Upon redemption of your savings bonds you would only owe tax for the current year's accrued interest.

6. Convert Them to TIPS

Treasury Inflation Protected Securities (TIPS) are exactly what they sound like: Bonds designed to keep pace with inflation. Unlike the traditional savings bonds you may be holding, their value adjusts with the inflation rate, so that their worth is not eroded over time. Selling your traditional bonds and using the proceeds to acquire TIPS, instead, might protect your capital better from inflation.

Do you have old savings bonds? How do you intend to use them?

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Guest's picture
Grace @ Investment Total

Thank you for informing us not to park our money in bonds. It is a wise idea if you will convert your bonds into cash and invest them in ROTH IRA or directly in the stock market. For potential maximum growth.