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Savings Bonds: How/When to Cash in

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For many years, U.S. Savings Bonds were an attractive, simple way for Americans to save money for the future or to provide meaningful gifts to grandchildren. Not any more. Older Series EE bonds had a high "floor" interest rate and an additional variable rate that changed every six months. In 2005, that formula was discontinued. Now EE bonds carry a fixed rate for the first 20 years, set at the time of purchase. Locking in today's low rates makes them quite unattractive for new purchases.

But, deciding how and when to cash older Series EE bonds has become an art form. And few experts are as knowledgeable as Jackie Brahney of, a website that is dedicated to helping investors understand their savings bond values. The website offers a free savings bond calculator and color coded inventory form, secured with a password. For a membership fee of less than $1 per month, you can also get a monthly update by email, plus a "cash-in" report, helping you decide which bonds to cash first and the optimal time to cash them.

Here are five basic things you should know:

--When should I cash my savings bonds? Older, paper savings bonds reach "original maturity" when they reach their face value -- the amount written on the bond. Because of the variable interest rates on them, there is no fixed date for that to happen. They will continue earning interest until they reach "final maturity" -- 30 years from the issue date for all EE bonds.

--What's the tax implication of cashing a savings bond? Unless you elected to pay taxes on the interest on an annual basis, which few people do, you must pay federal income tax on the bonds in the year they mature -- even if you don't cash them in. (And if you cash them in early, you'll pay taxes that year.) There is no state or local income tax on U.S. Savings bonds.

Warning: Cashing in a lot of bonds in one year could result in enough interest income to put you in a higher tax bracket or push seniors into paying more for Medicare Part B. Also, for bonds purchased after 1989 in parents' names, there may be some tax advantages if the proceeds are used to pay college costs, depending on the family income and other requirements.

--How do I choose which bonds to cash in? That depends on the bond. Some older EE bonds that have not reached final maturity yet had a guaranteed rate as high as 8 percent for the original maturity period, and still may pay a higher semi-annual rate than current low yields. That's why it's important to have Savings Bond Inventory and "cash-in" report as offered by Also, despite low current fixed rates, all EE bonds issued since May 2005 are guaranteed to double in value in 20 years, with a value adjustment made at that point.

Note: Cashing in bonds just one day before interest is posted will cost you all the interest for that period (either one or six months, depending on the bond). And cashing them within five years of purchase will create a three-month interest penalty.

--How do I cash in savings bonds? If you have paper bonds, you can bring them to a financial institution. But you should run a savings bond valuation report before doing so, to make sure you are receiving the correct amount! You can cash electronic bonds early at, but they must be held at least one year before they can be cashed.

--Can I give my bonds to my children to avoid taxes on the interest? Removing the primary owner (which can only be done before final maturity) usually creates a taxable event. The original owner is responsible for reporting all interest earned up to that point.

Yes, cashing in savings bonds is not as simple as just going to the bank. If you want to get the most out of your investment, do your homework before getting rid of old savings bonds. They could be more valuable than you think. That's the Savage Truth.