Terry Savage: Redeeming matured bonds
Investor interest in savings bonds is higher that it has been in recent years. As I explained several months ago, Series I bonds, which adjust to inflation, had a yield of 7.12% for the six months ending May 1. The rate for the coming six months is expected, as I write this, to be 9.62%.
The only place to buy savings bonds now is through the online government website — TreasuryDirect.gov — where it’s easy to set up an account and make your purchase with money taken directly from your bank account. You must hold the savings bonds for at least one year. And if you sell before holding for 5 years, you’ll lose the last 3 months of earned interest.
There is a $10,000 per person per year limit for purchases of these electronic savings bonds. You can also buy up to $5,000 per year in paper bonds using your tax refund.
But with all the attention to today’s high rates for bond purchases, there’s another issue that many savings bond owners face: what to do with your old Series EE savings bonds as they mature and stop earning interest. At that point they must be redeemed.
Series EE bonds were first issued in 1980. All Series EE bonds mature after 30 years and stop paying interest. Series I bonds were first issued in 1998, so none have matured yet.
Find the value of your old paper savings bonds at TreasuryDirect.gov using their savings bond calculator. Enter the denomination, issue date and serial number from the paper bond to get its current value and maturity date.
Don’t jump to cash in old savings bonds just based on the current market value. Many older bonds may carry high “base rates” that will last the life of the bond, along with current inflation adjustments.
When you cash the bonds, you will owe ordinary income taxes on all the accrued income (unless you were one of the very few who elected to pay taxes along the way). Treasury or the financial institution that cashed the bonds will send you a 1099 for your taxes.
That gain could impact the taxability of your Social Security benefits, or even your Medicare Part B premium if you have a big jump in income in any one year. Consult your tax adviser before redeeming bonds.
In the olden days, practically every bank would sell and redeem savings bonds. Not so today. If your bank doesn’t cash savings bonds (and many don’t, especially for non-customers), you can send the bonds — unsigned — to the Treasury Department, along with Form FS 1522, which can be downloaded from TreasuryDirect.gov.