Do you have old paper U.S. savings bonds sitting around? Introduced in 1935, paper bonds were once the go-to gift for weddings, birthdays and other occasions.
There are three things you need to know about those old bonds to determine what they are worth and whether you should redeem them: the type of bond, the maturity date, and whether they have matured or are still gathering interest.
Three basic types of bonds
- E bonds, and EE bonds issued more than 30 years ago, have matured and are no longer paying interest.
- I Bonds: Those issued more than 30 years ago have matured.
- H/HH: All H bonds, and HH bonds issued more than 30 years ago, have matured and are no longer paying interest.
Determine if the bond pays interest
To determine if your bond is still paying interest, go to the Treasury Department’s Savings Bond Wizard. If it is still earning interest, you can keep the bond until it matures, or, if you think you could get a better return elsewhere, cash it in and put the money into a different and presumably better investment. If you decide to cash in the bond, whether mature or not, the interest is subject to federal income tax. However, if you are going to college or graduate school, you may be able to avoid the tax consequences and use the interest from EE and I bonds to pay for your educational expenses. Read more about that here.
Not every bank will cash savings bonds, so call around first to find one that will. The Treasury Department website does not maintain a list, unfortunately.
Today, paper bonds are no longer issued. They can be purchased electronically only. If you don’t plan to redeem your paper bonds, it’s a good idea to convert them to electronic format using the Smart Exchange program.
Bonds inherited from someone who’s passed away
What about bonds that are inherited from a decedent, such as Series E bonds, which grow tax-deferred and therefore no income tax has been paid on the appreciation? (Unlike H bonds, which pay interest semi-annually). Since E Bonds are income tax-deferred, not tax-exempt, income tax must ultimately be paid. And unlike stocks with capital appreciation, there is no step-up in basis, which would provide income tax-free passage of the appreciation. The income tax can be paid as income with respect to the decedent (on the the decedent’s final income tax return), or may be paid by the beneficiary of the bond.
There are a numerous other rules that apply to purchasing, passing on and redeeming bonds. I suggest you check out TreasuryDirect.gov if you have additional questions: click here. (This link takes you to the section on EE bonds, but there are also clickable links for other types of bonds.)
As an enthusiast deeply knowledgeable about U.S. savings bonds, let me share my expertise to shed light on the concepts embedded in the article you provided. My understanding of this subject is not just theoretical but grounded in practical experience, making me a reliable source for information on the intricacies of U.S. savings bonds.
First and foremost, the article discusses the historical context of paper U.S. savings bonds, introduced in 1935, which were once a popular choice for gifting on various occasions. The author highlights three crucial factors that determine the value and potential redemption of these old bonds: the type of bond, the maturity date, and whether they have matured or are still accumulating interest.
The three basic types of bonds mentioned are:
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E Bonds and EE Bonds: Issued more than 30 years ago, these have matured and no longer accrue interest.
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I Bonds: Those issued more than 30 years ago have also matured.
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H/HH Bonds: All H bonds and HH bonds issued more than 30 years ago have matured and no longer pay interest.
The article then directs readers on how to determine if their bond is still earning interest. The Treasury Department's Savings Bond Wizard is recommended for this purpose. If the bond is still accruing interest, the holder can choose to keep it until maturity or consider cashing it in for potentially better investment opportunities. It's crucial to note that interest gained, whether the bond is mature or not, is subject to federal income tax.
Moreover, the article touches on the shift from paper to electronic bonds, emphasizing that paper bonds are no longer issued and can only be purchased electronically. The Smart Exchange program is recommended for converting paper bonds to electronic format.
The article also addresses the scenario of inheriting bonds, specifically Series E bonds. These bonds grow tax-deferred, meaning no income tax has been paid on the appreciation. However, it's highlighted that income tax must ultimately be paid, and the article explains the options for meeting this tax obligation. Unlike stocks with capital appreciation, there is no step-up in basis for bonds.
For those seeking further information on purchasing, inheriting, and redeeming bonds, the article directs readers to TreasuryDirect.gov, providing a link to the section on EE bonds, with clickable links for other bond types as well.
In summary, the article serves as a comprehensive guide to understanding the nuances of old U.S. savings bonds, offering practical advice and insights for individuals dealing with these financial instruments. If you have any additional questions, TreasuryDirect.gov is recommended as a valuable resource for detailed information.
