Splitting the I-Bond Baby

December 7, 2012 5:52 AM

Sibling and I have inherited ten U.S. savings bonds (I series), purchased at various times and maturing in 2030-2036. We just want to divvy them up equally, but they are not naturally paired (i.e., purchased two at a time). What's fairest?

We have no experience with bonds or their valuation. Strikes me that we could divide based on price plus present accrued interest, but that would ignore (I think) the future value of the bonds with different rates/yields. At the other extreme, we could balance the value at time of final maturity, but not sure how to calculate that.

Basically, we just want to be approximately even in distributing the bonds, recognizing that some cash payment will be necessary to make up the difference. Let's put aside the possibility of selling all of them now and splitting the proceedings, and assume we want to hold them. Any other ideas?

Happy to give any other critical information, but would just as soon avoid typing out all the specs. Thanks!

posted by Clyde Mnestra to work & money (10 answers total)

You could build a little spreadsheet and use the PV function to determine what they are worth today assuming you can't find someplace on the web that has already done the math for you.
posted by JPD at 6:05 AM on December 7, 2012

Are the the same face value? Shuffle them, deal them out randomly and go on with life. If not, split up so you each get an equal amount of face value and go on with life. At recent rates, there isn't enough interest earned to make a difference.
posted by COD at 6:11 AM on December 7, 2012

COD, savings bonds typically earn at the interest rates of when they were purchased, not current rates. So it can definitely make a difference.

Clyde, try TreasuryDirect's savings bond calculator. You should be able to enter all your bonds there and see how much each one is worth, what interest rate each is getting, and when the final maturity of each is.
posted by reptile at 6:14 AM on December 7, 2012 [4 favorites]

I was going to say go to the bank and have them see what they're worth today, then divvy them up according to their value NOW.

On preview, reptile has it.
posted by Ruthless Bunny at 6:20 AM on December 7, 2012 [1 favorite]

Thanks, all. So as to reptile's solution, my amateurish question is this. I have used the savings bond wizard, which does the same calculation as the calculator: it'll give me the "value" in the sense of the face value plus accrued interest.

But given that one purchases these bonds with a fixed rate, is that the real value of each bond as an asset being divvied up? I mean, suppose I take bonds that in total, now, have a calculator/wizard value that is the same as those given my sister, but *also* have a higher fixed rate -- e.g., they were originally purchased later and started with a lower "value" in terms of accrued interest, but have caught up at present, and will keep on doing better? Wouldn't I be taking something with a higher market value, or at the least a higher value at final redemption? I just don't want to do anything that isn't fair here.
posted by Clyde Mnestra at 6:53 AM on December 7, 2012

Something like this happened to me in Canada so it may not apply to you, but I'm mentioning it on the off chance:

Part of my mother's estate when she died was in savings bonds set to mature some years later and I assumed wrongly the thing to do was hang onto them until that date.

I only found out later that they should have been included when we sorted out her bank accounts, insurance and other odds and ends, because when I came to try to cash them it reopened the whole question of the estate, the joint executorship of my sister and me and so forth, on and on, causing much more trouble than had I dealt with them with the rest of the liquidation and distribution stuff.

It may be that you will have to convert these to bonds with your own names on them rather than the original owner's. You should ask someone.
posted by zadcat at 7:22 AM on December 7, 2012

Thanks, zadcat. Yes, we will have to convert the bonds to new names/owners -- and negotiating the IRS forms in this regard is its own special process. Just trying to figure out which should be retitled to whom.
posted by Clyde Mnestra at 8:36 AM on December 7, 2012

You are right that the bonds with higher interest rates will be worth more (relative to face value) compared to bonds with lower rates.

The technical/official way to do this, as suggested, would be to value each bond using some online tool and divide them equitably from there. If you are talking about a sizable amount of money it might be worth the effort to do this.

If you don't want to deal with an online tool, the possibly simpler and brotherly way to do it would be just split the bonds up into two pools such that each pool has a similar amount of (i) total face value (including accrued interest if it is material) and (ii) annual interest payments. In effect by doing this you are pooling and creating two virtual bonds with like characteristics so it is equitable. This method ignores differences in the maturity dates, but because all the bonds mature generally in the same era it wouldn't make a difference (all the bonds are on the same part of the yield curve).
posted by jameslavelle3 at 11:06 AM on December 7, 2012

You and your sibling may value them differently (based on maturity dates, interest rates and personal financial situation), regardless of Net Present Value. Why not just take turns choosing? If you want to get fancy, first person takes first choice of bond, second takes two bonds, then two, two, two, until the person who chose first gets the last bond.
posted by zanni at 4:08 AM on December 8, 2012

Either present value or maturity value are totally valid ways to split this stuff up. You may even be able to get fairly close to half and half with both options if you play around with the possible distributions.

You could also calculate the net present value of the future earnings (which is not the same thing as the current accrued value of the bond) of each bond, add it to the current accrued value of the bonds and then divide them up based on that.

One thing that might be a factor is what you intend to do with the bonds themselves. If you're both intending to keep them to maturity, then the value at maturity is likely the only thing that really matters. If one of you plans to keep them and the other plans to sell them off early, you may be able to come up with a solution that maximizes the value of the bonds for your whole family (ie, focus on getting the most money out of the government, rather than on each getting precisely the same amount of money).
posted by jacquilynne at 9:33 AM on December 8, 2012