I still have 4 EE savings bond from my teenage years with a face value of $1000 each. The current total value for all of the bonds is about $2500 and they earn on average about 2.9%. The question… Cash them in or hold on to them?
Why I Should Hold em’
I currently have enough cash flow. I don’t have any immediate needs. I’m in good enough financial shape currently and can manage the mortgage and car loan. These payments are not particularly taxing and I’m actually able to accelerate the payments on my student loan which happen to have the highest interest rate of all my debt.
I’m a bit older now and in better control of my finances but I’m still tempted to blow the money on something completely trivial. Do I really need another video game or phone case that I’ll probably regret buying in a week anyway? It can be a struggle to determine the difference between need and want.
I have to pay taxes on the income. These bonds were given to me a while ago, but when I redeem them, I will owe taxes on the interest portion of the amount I receive. In the 33% tax bracket this ends up being about $165. The total payout will be about $2335 in cash after the taxes. Then you have to resist the temptation to spend it as described above.
Why I Should Fold em’
There’s really only one big reason for redeeming the bonds. They earn 2.9% – Can you beat that rate elsewhere with the equivalent amount of risk?
From my viewpoint cashing in out weighs the reasons not to. With regards to the caveats mentioned above take the cash and immediately apply it to debt. Reinvest the proceeds into something that gives a better return. Yes the risk will be a little higher but Govt savings bonds are the lowest risk investment available. If you are young enough index funds can be a good long term investment.