When to cash EE savings bonds?

January 2, 2018 1:27 PM

While I was home for the holidays, my parents gave me a bunch of savings bonds that had been bought for me while I was a kid (and that I subsequently forgot existed). Now I have a few thousand dollars in EE savings bonds -- great! Except, when should I sell them?

Me:
* Late 20-something single man, with no kids or dependents
* No student/car/credit card debt
* Looking to buy a house in 2018, but otherwise no immediate need for this money and financial situation is good
* Currently at bottom of new federal tax bracket and likely to stay in that bracket for near future, barring a marriage, kid, unemployment, or significant job change
* No education-related expenses expected

Bonds:
* Issued from Dec 1988 to Oct 1997, so all bonds have hit their original maturity date and have anywhere from 1 to 10 years until final maturity.
* About $8500 of bonds (current value) was issued in 1994 or earlier, and they're currently getting the guaranteed interest floor of 4%.
* The remaining $2500 was issued after Oct 1995, and they're currently getting market-based interest rates around 1.6%.

Current thinking:
* In my current tax position, I wouldn't get much, if any, of a tax advantage from holding each bond to final maturity.
* If current interest rates held steady, I'd realize about $1500 total in additional interest over the next 10 years. (Near-term it seems like interest rates are likely to continue to rise given the Fed's rate increases, but I have no desire to muck around with long-term interest forecasting.)
* It's simplest and easiest to just sell them all now.
* I could use the proceeds to help make a 20% down payment on a house purchase and avoid PMI, with the excess either going towards a bigger down payment (since a mortgage at 3.5%-4% would be comparable to the bond) or (more likely) put into higher-yield retirement or other investment accounts since I have a long investment horizon.

Does my thinking make sense on this? Any advice on when to sell, or resources that would be helpful? I considered consulting a financial planner, but I don't think it's worth it since I'm just deciding about $1-$2K in potential foregone interest. Thanks!

posted by bassooner to Work & Money (7 answers total)

I'm not sure what you mean by selling. If you want to cash in your savings bonds, you can do it at any bank. I just did it last week and it took just a few minutes with a teller. They calculate how much is due, you sign and fill in the back of the bond (in front of them), show your ID, and then take the cash. You'll get a tax form next year (I can't remember which one) because you have to report the interest you earned, so make sure that you provide an accurate address.
posted by Caz721 at 1:45 PM on January 2, 2018

If the value that you'd spend on PMI until you got your principle down to 80% is more than the roughly $1500 you might make in the next 10 years, I'd say cash them now and use that money exactly as you've planned.
posted by hanov3r at 2:30 PM on January 2, 2018

I inherited some bonds earning 4% and since that's higher than I can get in any money market funds I could find right now, I've left them in there and only cash them out as they mature. I don't need the money though. What ever you do, you'll probably need an emergency fund, so it may make sense to leave as many of the ones making 4% to use as an emergency fund and only cash out the ones earning market rate, or the oldest ones still earning 4% that are about to mature until you absolutely need the money.
posted by willnot at 2:36 PM on January 2, 2018

...you can do it at any bank...

But not at any credit union. Maybe at some, but not at mine. I had to open a bank account to be able to cash in treasury bonds.
posted by Kirth Gerson at 3:28 PM on January 2, 2018

Keep the ones at 4%. There's no way to get a guaranteed interest rate that high now.

You can convert them all to electronic bonds at treasurydirect.gov, although the website is truly horrible so paper might be a better option.
posted by unix at 5:45 PM on January 2, 2018

I think that EE? bonds can be used to pay for education with no/little tax hit as well, so I don't know if you've already gone to school or are planning to somewhen, in which case, that might also be of interest to you. : )
posted by bitterkitten at 10:04 AM on January 3, 2018

A 30-year treasury bond is yielding under 3% now; are you sure your mortgage is going to be higher than 4%? With the new standard deduction only very high income people (like $250K and up) are going to be itemizing, so mortgage interest isn't going to be tax deductible, as I understand it. Feel free to cash in the market interest rate bonds if you want, though you're still making $15 per $1K per year, which isn't nothing.
posted by wnissen at 10:41 AM on January 4, 2018