It's sad to report that buying U.S. Savings Bonds is no longer a good deal because they have been restructured to permanently lock in today's low rates. Perhaps that's why sales of new EE and I bonds fell to only $630 million in 2014, down from nearly $12.8 billion a decade earlier.
But don't dump your older savings bonds without checking their features. Many started out with much higher rates, and still get a rate adjustment every six months. For example, Series EE bonds issued between May 1, 1997 and October 31, 1997 originally paid 5.68 percent, although they currently earn at 1.49 percent - which is still much higher than CD rates. Series I bonds that were sold in 1998 carry a fixed base rate of 3.4 percent, plus the inflation adjustment, also making them more attractive than new bonds.
Here are five basic things to know about savings bonds, and some resources to answer your questions and give you the current valuation of your bonds.
1. Current rates: Currently issued Series EE bonds carry a fixed rate for the first 20 years of the 30-year life of the bond. For the remaining 10 years, the government may issue a new fixed rate. The current rate for newly issued EE bonds is 0.10 percent for 20 years. A new fixed rate will be set on May 1.
Series I bonds carry two rates -- a fixed base (currently zero percent) for the life of the bond, and a rate based on inflation, which is changed every six months. The current 6-month rate is 0.74 percent, but based on the formula for calculating the payout, the current composite yield on a Series I bond is 1.48 percent.
2. Savings bond values: Interest, based on the formula in place at the time the bond was purchased, continues to accrue over the life of the bond -- until the bond reaches final maturity. Because of floating rates, the bond will likely be worth more than its face value at maturity.
To find out what old bonds are worth today (and if they are still accruing interest), go to SavingsBonds.com and use its savings bonds calculator and inventory forms. Or go to TreasuryDirect.gov, click on the section for "individuals" and learn more about bonds as well as use the Savings Bond Wizard tool.
Jackie Brahney, Marketing Director of SavingsBonds.com says, "It important to know cash in values, interest rate performance and potential tax liabilities before cashing in any bonds. You can avoid losing money by holding onto higher yielding bonds and redeeming the lower performing bonds first."
SavingsBonds.com has valued over $1.1 billion worth of savings bonds for over 275,000 bond owners.
3. Taxes on savings bonds: When the bonds are redeemed (cashed in), federal income tax is due on the interest earned over the years. That income must be reported on your federal tax return (although not on your state return) -- assuming that you did not report the accrued income annually.
If you have older paper savings bonds, you can cash them at some banks, and the bank will send you a 1099-INT form, giving you the amount of interest to report on your tax return.
Even if you don't cash the bond, the interest earned on matured bonds must be reported in the year the bond reaches its final maturity.
4. Bond ownership: Savings bonds may have a single name, or a co-owner or a beneficiary -- a maximum of two names. Upon the death of a "primary" owner, if a co-owner is listed on a paper bond, the co-owner will have full rights to the bond. If there is no co-owner or beneficiary listed, it will go into the estate of the person who died.
To change the names of the owners on the bond you will need to have the bonds reissued. The bonds will be replaced in electronic format. If you give up ownership of the bond, perhaps gifting it to someone else, you owe taxes on all the income that accrued until the date it was reissued. You may want to name that person a beneficiary, instead -- so the value of the bond will be "stepped up" as of the date of death under current tax laws.
5. Savings bonds for college: Bonds purchased in the name of the parent may be eligible for a tax-free redemption -- if the bonds are used to pay for qualified college expenses. But there are parental income limits to qualify, currently phasing out at income above $76,000 on a single parent's return and $113,950 on a joint return.
It's a shame that at a time when savings should be encouraged, and when the government is accumulating more debt, the current formulas for savings bond interest make them so much less attractive. And that's The Savage Truth.