Author Topic: Should I redeem an EE series savings bond? (Read 1473 times)

frugalnacho

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Should I redeem an EE series savings bond?
« on: November 18, 2016, 08:12:27 AM »
My wife was cleaning up some old documents and came across an old EE bond she was gifted. It has $50 face value and was purchased in 2004. I believe that means it was purchased for half of face value ($25). We checked the treasury website and it is currently worth about $33, and won't reach full value until 2033 (30 years from date of issue).

I've read that EE bonds are required by law to reach face value at 20 years, but that seems to conflict with information on the treasury website so I'm not sure if it's true. If the value will automatically adjust to $50 in 2024, that's 8 years away and would equate to about a 5.3% annual return between now an then. If that's not true and it matures in 2033 it's more like a 2.4% return.

Given that we have a mortgage at 5.5% it seems that redeeming it immediately and paying it towards the mortgage would be more optimal than keeping it regardless of which date it actually achieves face value. Plus then we don't have to worry about keeping track of a tiny bond for the next 8-18 years.

I know it's a tiny amount of money that will have literally no impact on our FIRE date, but I'd still like to do the optimal strategy, and also maybe I'll gain a little knowledge in the process.

Heroes821

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Re: Should I redeem an EE series savings bond?
« Reply #1 on: November 18, 2016, 08:35:45 AM »
When I was very very young my grandfather purchased 1 EE bond per month in my name for 2 years. My understanding of them (subject to many changes that apply to new EE bonds in the last decade?) is that they take 15 years to reach face value and then they have 15 more years to grow. I took all of them that were producing a rate below 3% and cashed them out because they were below inflation was my thought.

I can definitely see new ones probably waiting 20 years to reach face value though.

frugalnacho

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Re: Should I redeem an EE series savings bond?
« Reply #2 on: November 18, 2016, 08:43:50 AM »
When I was very very young my grandfather purchased 1 EE bond per month in my name for 2 years. My understanding of them (subject to many changes that apply to new EE bonds in the last decade?) is that they take 15 years to reach face value and then they have 15 more years to grow. I took all of them that were producing a rate below 3% and cashed them out because they were below inflation was my thought.

I can definitely see new ones probably waiting 20 years to reach face value though.

I think they change the rules periodically based on the economic climate. I had tons of them gifted to me as a child, and I redeemed all of them for more than face value when I was around 19 years old. I remember the extra money being useful for college, so when it was time to buy gifts for my nieces I figured I would do the same, but the rate of return was so abysmal, and the maturity date so long into the future that it just didn't make sense to purchase them.

Drifterrider

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Re: Should I redeem an EE series savings bond?
« Reply #3 on: November 25, 2016, 09:50:09 AM »
Check what rate they are paying. Some EEs were paying high rates (compared to today's rates). If they are still earning those high rates, let them earn.

seattlecyclone

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Re: Should I redeem an EE series savings bond?
« Reply #4 on: November 25, 2016, 09:58:01 AM »
Per this page, the bond is currently earning interest at a rate of 1.07%. Sounds like cashing it in and putting it toward the mortgage would be a fine idea.
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AlmstRtrd

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Re: Should I redeem an EE series savings bond?
« Reply #5 on: November 25, 2016, 01:14:15 PM »
This is the pertinent bit of info from the Treasury Direct website:

"For EE Bonds with issue dates from June 1, 2003 through April 1, 2005, original maturity is 20 years after the issue date."

So that bond of yours will hit its "doubling date" on the 1st of the month in 2024 that it was purchased in 2004. So, using the rule of 72, that means an annual return of about 3.6%. But, per seattlecyclone's post, that bond will creep along earning about 1% interest right up until its doubling date. So it will jump from, say, $40 to $50 in one day.

If you were managing a big portfolio of bonds and had a bunch of bonds (thousands of dollars worth), it could be worth waiting. In your situation, I think I would just cash it in and be done with it.

Feel free to PM me if this is not clear. I bought a bunch of EE savings bonds ages ago and am pretty familiar with them.

Retire-Canada

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Re: Should I redeem an EE series savings bond?
« Reply #6 on: November 25, 2016, 01:52:45 PM »
I know it's a tiny amount of money that will have literally no impact on our FIRE date, but I'd still like to do the optimal strategy, and also maybe I'll gain a little knowledge in the process.

Well to me the optimal strategy for something worth less than $50 is to resolve it in under 5 mins. My time is not free. I'd cash it in and be done with it.

frugalnacho

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Re: Should I redeem an EE series savings bond?
« Reply #7 on: November 26, 2016, 10:22:16 AM »
This is the pertinent bit of info from the Treasury Direct website:

"For EE Bonds with issue dates from June 1, 2003 through April 1, 2005, original maturity is 20 years after the issue date."

So that bond of yours will hit its "doubling date" on the 1st of the month in 2024 that it was purchased in 2004. So, using the rule of 72, that means an annual return of about 3.6%. But, per seattlecyclone's post, that bond will creep along earning about 1% interest right up until its doubling date. So it will jump from, say, $40 to $50 in one day.

If you were managing a big portfolio of bonds and had a bunch of bonds (thousands of dollars worth), it could be worth waiting. In your situation, I think I would just cash it in and be done with it.

Feel free to PM me if this is not clear. I bought a bunch of EE savings bonds ages ago and am pretty familiar with them.


Does it continue accruing interest after it reaches face value? I just double checked the savings bond calculator and it says "final maturity 4/2034" (I originally typed 2033. not sure if my wife misspoke or I mistyped)

Wouldn't it still make sense to cash them in and pay my 5.5% mortgage regardless of how many bonds I held? Assuming my total amount of bonds was less than the balance on my mortgage.

AlmstRtrd

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Re: Should I redeem an EE series savings bond?
« Reply #8 on: November 26, 2016, 12:21:07 PM »
Yes, it will continue to accrue interest for 30 years from the date of purchase.

Regarding your original post, you've probably learned what you can at this point and thinking about optimizing this small amount of money is not worth your time.

The answer to the mortgage question might be interesting if you were talking about $100,000 in EE bonds. And even then you'd have to take into account taxes on savings bond interest, any tax deduction you get from the mortgage, etc.

And with a single bond of any value you have to assign some probability to the possibility of losing it (not a worry if you have the serial #). But, yeah, just cash it in and be done with it. Your bank will credit the $33 to your account, give you a printout of the transaction and send you a 1099-INT form at the end of the year.

JJsfr

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Re: Should I redeem an EE series savings bond?
« Reply #9 on: November 27, 2016, 12:34:08 PM »
I have some paper ones that I've converted to electronic. Some are at 5% (which I'm going to keep) and others are at 2% which will be sold in January.