Two big changes in more recent years have impacted the popularity of U.S. savings bonds. Switching to book-entry format instead of paper bonds was certainly appropriate in this age of technology to save money for the Treasury, but even printing a “gift certificate” from the TreasuryDirect.gov website doesn’t give the same thrill as the old, printed cardstock did.
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Even more unappealing are the changes to the way interest paid on series EE bonds is calculated. For bonds purchased starting on May 1, 2005, the variable rate was eliminated and interest changed to a fixed flat rate for the life of the bond — or for the first 20 years of a 30-year bond. For bonds currently purchased, the flat rate is 0.5 percent! Yes, half of one percent — locked in for 20 years! It is a terrible deal.
Yes, there are series I bonds, which carry both a fixed flat rate set at time of purchase, plus a floating rate component set every May and November based on the inflation rate. The current I bond composite rate is 1.94 percent, with the fixed rate component being only 0.10 percent. (In recent years, the fixed rate portion was actually zero!) But there’s no marketing being done for these bonds.
A Big Warning for Savings Bond Holders
Some of the older EE and I bonds carry high fixed-base rates, plus semi-annual adjustments. They are very attractive investments — and you don’t want to cash them in before maturity because you are still getting such a good deal. But when the series EE bonds do reach maturity and stop paying interest, which will be 30 years from the purchase anniversary, you must pay taxes on the accumulated income.
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Many people who purchased series EE bonds long ago have savings bonds worth far more than the “face value” of the bond because of the many years of accumulated interest accrual. The warning is that you must pay taxes on the accrued income in the year in which the bonds mature — even if you don’t cash them in!
Many seniors who had planned to cash in the bonds on a staggered basis to avoid earning income that moves them into a higher tax bracket, and could even impact Medicare monthly premiums, should be aware that this strategy won’t work. The IRS will assess a penalty if you don’t declare the savings bond income in the year of maturity.
(Note: All of the original series E bonds have already reached final maturity, even though they were extended for 40 years; and series EE bonds issued before June 1984 have reached final maturity.)
For more information on U.S. savings bonds, go to TreasuryDirect.gov and click on “individual” and then on “savings bonds.” There is even a calculator to help you determine the current worth of your old bonds and the final maturity dates.
There is another website, not to be confused with the government website, which will value your bonds and help maintain your inventory. It is filled with useful advice about valuing, managing, and cashing in your savings bonds at the appropriate time so you get the maximum interest payment. It is SavingsBonds.com. They will send you a complimentary bond printout to help you track your savings bonds and their maturity dates.
Those quaint old pieces of paper that you bought out of thrift or patriotism or received as a birthday gift are now worth a lot of money! What a shame that our children and grandchildren won’t get the same chance to build wealth through savings bonds. And that’s The Savage Truth.
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