Savings Bonds: Like a Fine Wine, They Get Better with Age

We’ve all heard the stories before: A new homeowner digs through the junk left in his or her attic, only to find a small fortune in some random, valuable antiques. However, what if instead of finding a few antiques it was a collection of old savings bonds?


Well, earlier this year, this exact scenario happened to a man while collecting some things from a customer of his junk removal business. After picking up items the customer had cleared from her attic, workers found $22,000 worth of saving bonds from 1972 tucked inside an envelope – a value of approximately $114,000 today!


While stories like that can make everyone want to go on a wild savings bond search through the junk in their homes, in reality, it only helps add to the confusion about savings bonds today. Case and point? To the man who found the $114,000 worth saving bonds, the bonds were worth nothing. That’s because savings bonds are always sold in the name of an individual, and only for that individual will those bonds hold their value.


With that being said, there are a lot of questions surrounding the use and value of savings bonds in 2013. In this post, we’ll help answer those questions and provide advice for what you should be doing with your savings bonds.


What are they worth?


As referenced in the story before, old savings bonds can be worth some serious cash. The older they are, the more valuable they become, too. To determine the value of your old savings bonds, you can use TreasuryDirect’s online “Savings Bond Calculator.” You can even use the tool to find out what your bonds were worth in the past AND what they’re going to be worth in the near future.


What should I do with it?


When it comes to cashing in on savings bonds, the key to maximizing your investment is to let your bonds fully mature.  A bond’s value should double from the purchase price in 20 years and earn interest for the next 10 years after that, but after 30 years almost all bonds are fully matured and stop earning interest. Once this happens, since your bonds are no longer earning interest, you can cash them out and spend, save, or reinvest your money.


Savings bonds can be cashed over the counter at a bank, by the owner of the bond. If the bond owner is deceased it can be a little trickier and we would advise you to talk with a banker.


Are they still popular?


In effort to save money and reduce environmental impact, the US Treasury Dept. stopped selling paper bonds to the public in January 2012. While this certainly impacted the demand from older relatives who rely on visiting the bank to purchase savings bonds for their grandchildren, savings bonds are still a great gift to teach kids about the power of investment. In addition, any bond purchased between May 1, 2013 and October 31, 2013 will earn interest at 3.5% If held to maturity, providing a good yield for one of the safest investments out there.


Are there any alternatives?


One alternative to using savings bonds is a 529 plan, a college investment account. As mentioned previously, any savings bond purchased in the current timeframe will earn 3.5% interest if held to maturity.  If the bond isn’t held to maturity, it will only earn 0.2%. For those doing the math at home, that would only equate to just $1 earned during the first year on a $500 bond. Because there isn’t a penalty for cashing a bond prematurely if it’s used on qualifying educational expenses (529 plans included), if the return on a bond is less than that of a 529 plan, you might want to consider reinvesting. However, make sure you check every bond’s interest rate before exchanging it. For example, bonds issued in the same May-October timeframe in 2006 earn a 3.7% annual fixed rate, and wouldn’t be worth the swap.


Though savings bonds have seen a dip in popularity over the last few years, they still remain as one of the safest investments you can make while providing a nice return. Just remember to check the value of any old savings bond next time you find one, because it could be worth more than you think (even if you need to wait a few years).