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Are savings bonds still worth the investment?

Posted at 5:11 PM, Apr 12, 2018
and last updated 2018-04-12 17:11:50-04

Savings bonds are one of America’s safest investments and historically one of the most popular. If you’re still holding onto some paper certificates Carl Carlson, CEO of Carlson Financial has some information on what you could be doing to use savings bonds to your advantage.

Many Americans were raised on ads to “be patriotic” by buying savings bonds; they were frequently given as graduation or wedding gifts.

Savings bonds have declined in popularity for many reasons, but many investors are still holding them and don’t know what to do with them.

Carlson said they aren’t a particularly attractive investment anymore, the current interest rates they yield are similar to cash or CDs. He sees people all the time who are sitting on thousands of dollars’ worth of savings bonds, unaware of how they work or whether they’re even still earning interest, and many of them are not.

Savings bonds all have different maturities, but generally after a 30-year duration they are no longer earning interest Carlson said if they are still within that window, they’re still not earning much.

You may be asking at this point what someone can do with their savings bonds. Will they have to pay taxes once they are redeemed or cashed out? Is there another investment you can roll them into while deferring the taxes?

Carlson said unfortunately no, they are taxed at the federal level, generally not state though.

There is one loophole that allows for paying qualified education expenses with savings bonds proceeds in the same year they’re redeemed. So if you have a child or grandchild going to college this year and you’d like to help them, savings bonds might be a good place to start.

The first step is to take inventory of what you have. Secondly, determine what you’re earning. If the yield doesn’t fit within your financial picture, determine the best strategy for redeeming them, Carlson said.