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What to do with your childhood savings bonds

Cleaning out your drawers, you discover an envelope containing old savings bonds. Here's how to find out what they're worth, whether they are still accruing interest and where you can cash them.

By Feb 5, 2014 12:32PM

This post comes from A.J. Smith at partner site on MSN MoneyA savings bond used to be a common gift, though not always a welcome one. Well-meaning relatives gifted savings bonds for your birthday or the holidays. The goal was often to help you pay for college in the future. But for us kids, all we knew was it wasn’t the Pound Puppy or Care Bear we really wanted!

Nowadays 529 plans and other higher-interest earning options have replaced the savings bond. But that doesn’t mean they’ve disappeared. In fact, they may be sitting at the back of your closet right now. But you are clearing out your closet or your safe deposit box, and now this long-forgotten and unexpected savings bond can help you clean up your finances.

U.S. Savings Bonds © inte2000/Getty ImagesIt’s still good

That savings bond is still worth something. That’s the good news. Savings bonds gain value over time by earning interest and keep earning interest for 30 years. They pay interest every six months until they mature. So depending on how long it’s been since you cleaned your closet, you may still be making money as you read this. Now there are some steps you have to take to get money in return.

What type of savings bond

There are several kinds of savings bonds. So you much determine which kind you have in your possession. Savings bonds are a contract between you and the federal government. If it’s an old bond from your childhood it is probably either an EE or an I bond. It will be clearly specified in the title which one you have.

EE bonds are similar to savings accounts. Paper bonds used to be sold at half the face value (you paid $50 for a $100 bond) and the interest continued to increase even after the face value is reached, so your $100 savings bond is probably worth more than $100 now. Paper EE bonds are no longer available and digital EE bonds are purchased at face value.

I bonds are similar to EE bonds. The chief difference is that the interest earned on an I bond is determined by a combination of a fixed rate and an inflation rate.  So there is some cost-of-living protection for the bondholder.

Find out what it’s worth

Before you decide to cash in the savings bond, you’ll probably want to know what it’s worth. The interest rates and even the way interest rates are determined have changed over the years so it matters when you got yours. The best way to determine the current value of your savings bond is to use the Treasury Direct website. Whether you want to cash in the bond or continue to let it mature is then up to you.

There are some penalties for cashing in the savings bond early. If you redeem the bond early, you will lose three months’ worth of interest during the first five years. There are no penalties after five years. The earliest you can cash in the bond is after one year. If the bond is more than 30 years old, it has stopped earning interest and you should cash it in.

While you will have to pay federal taxes on your bonds, you do not have to pay state or local income taxes. There are some exemptions – most notably when bonds issued after 1989 are cashed in to pay qualified higher education expenses at an eligible institution.

Visit the bank

Most banks should be able to help you cash your paper bonds. If they aren’t, they should be able to direct you to a financial institution that can. You will have to prove your identity to cash in your old bonds. You will have to fill out an tax form either when you redeem the bonds or at the end of the year. Your tax preparer should be able to help you with this part of the process.

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Feb 5, 2014 2:27PM
And wow, if they are really old there is a whole pile of accrued interest, which the person cashing the bonds is going to have to report on his or her tax return for the year they were cashed. And the value of the bonds are assets, and if they belong to the parent or child, which is usually the case, they are FAFSA assets that need to be disclosed should you be applying for college financial aid.  Would be a nice find if you find some, but the windfall may not be as great as you think.
Feb 5, 2014 5:03PM
Just a little side note to the author...this article would have been a bit more informative if you included a link to a savings bond calculator.  Not a big deal but a more complete article.
Feb 5, 2014 5:17PM

"So you much determine which kind you have in your possession. "

Did the editor take a snow day today or something?  So you much?  OK, then, mistakes happen, but with large media outlets one sort of expects that people check over the articles before rushing to print to catch things like this...

Feb 5, 2014 5:52PM

We received a savings bond as a gift when our daughter was born (36 years ago!!).  No idea where that is today; it was under $50.  Is there any way to trace a lost bond and cash it in?

Feb 5, 2014 4:30PM
Good luck finding a bank that will cash a bond for you if you're not one of their sucke, er I mean members paying their absurd rates and charges for all their other "services."  
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