SPRING LAKE, N.J., Sept. 26, 2018 /PRNewswire-PRWeb/ -- Over 50 million Americans own approximately $175 billion worth of U.S. Savings Bonds. While often thought of as a simple, affordable investment for most Americans, unfortunately, many bond owners lose money and pay more taxes than necessary.
Here are the top three savings bond mistakes according to SavingsBonds.com:
1. Unaware of Savings Bond Values and Interest Rate Performance
- Bonds do not all perform the same. They have different interest rates (which can vary greatly), rules and regulations based on the series (E and EE bonds or I) and issue dates. A savings bond calculator provides cash in values, interest rates and important financial information.
- Some series offer fixed interest rates which remains the same, while others have a variable rate that changes. Certain series (such as I bonds) offer a combination of both.
- Paper bonds continue to earn interest beyond their face value (amount printed on the bond) until they reach final maturity, which is normally 30 years.
- Older paper bonds can be worth several times more than their face value.
- A savings bond calculator provides exact cash in values, interest rates, maturity & tax information.
2. Arbitrarily Cashing In Bonds And Holding Onto Matured Bonds
- When needing cash, investors often hastily redeem their oldest bonds first, which could be earning the highest interest rates, while holding onto poorer performers.
- Redeeming some older bonds just one day early could result in forfeiting up to 6 months worth of interest.
- Over $24 billion worth of savings bonds have stopped earning interest. Holding onto matured bonds is like giving Uncle Sam an interest free loan.
3. Misinformed About Savings Bond Taxes
- The difference between the purchase price and the cash in (redemption) value is considered report-able interest.
- When a bond is redeemed, or reaches final maturity, whichever occurs first, all of the interest earned (if not previously reported) needs to be reported on ones Federal Income Tax Return for that year. Bonds are not subject to state or local taxes.
- Cashing in too many bonds in one year could result in needing to report a lot of interest income. This could result in a negative tax situation, especially for those on limited incomes.
Online monthly Savings Bond Statements provide advanced alerts when bonds are within three months of reaching their final maturity and includes the amount of interest that will need to be reported if redeeming.
Bond owners should be properly monitoring and managing their savings bonds to avoid costly mistakes. Using complimentary online calculators and management services makes it easy to do. Understanding values and interest rate performance, which bonds to hold, which to fold, which are earning zero interest and the potential redemption tax implications can help investors maximize their investment and avoid paying unnecessary taxes and losing money.
About SavingsBonds.com:
SavingsBonds.com's complimentary calculator provides cash in values, interest rates and a personalized, printable, color-coded, Savings Bond Inventory Report along with a "What This Means To You" explanation. For ongoing savings bond management & updated bond values via unique monthly emailed Savings Bond Statements, try a free trial of the SavingsBonds.com Membership Advantages which includes a helpful Cash-In-Report.© and optional, informative Bond Tips.
By: Jackie Brahney, Marketing Director, SavingsBonds.com jbrahney@savingsbonds.comhttp://www.SavingsBonds.com
SOURCE SavingsBonds.com
Markets Insider and Business Insider Editorial Teams were not involved in the creation of this post.
FAQs
Citing potential fraud, banks are making it increasingly difficult to pay out savings bonds. An unlikely beneficiary is the federal government.
Why does the United States government issue savings bonds? ›
United States Savings Bonds are debt securities issued by the United States Department of the Treasury to help pay for the U.S. government's borrowing needs.
Why does the United States government issue savings bonds Quizlet? ›
Why does the United States government issue savings bonds? It helps them have money for public service things like road maintenance.
What are three disadvantages of bonds? ›
Cons of Buying Bonds
- Values Drop When Interest Rates Rise. You can buy bonds when they're first issued or purchase existing bonds from bondholders on the secondary market. ...
- Yields Might Not Keep Up With Inflation. ...
- Some Bonds Can Be Called Early.
What causes bond prices to fall? Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.
Why do savings bonds lose value? ›
If a bond is held past its maturity, the federal government remains responsible for the debt. However, savings bonds that are held past their maturity date do not continue to earn interest and may actually lose value due to inflation.
What is a $100 savings bond worth after 30 years? ›
How to get the most value from your savings bonds
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
Series EE bonds mature after 20 years. They are sold at half their face value and are worth their full value at maturity. Series I bonds are sold at face value and mature after 30 years. Interest is added monthly to the bond's value.
How to cash out savings bonds? ›
You can cash paper bonds at a bank or through the U.S. Department of the Treasury's TreasuryDirect website. Not all banks offer the service, and many only provide it if you are an account holder, according to a NerdWallet analysis of the 20 largest U.S. banks.
Should I cash EE bonds after 20 years? ›
At 20 years, the government ensures that you will be paid double the face value of the bond. Although they technically mature after 20 years, these bonds actually don't expire for 30 years. You'll keep earning interest for an extra decade.
Nowadays, savings bonds operate in much the same way. You still provide a loan to the government at very low risk. But now, bonds are sold primarily online through TreasuryDirect.gov instead of with paper certificates you can hide beneath your bed. Bonds remain a safe, easy way to save and earn money over time.
What happens when you buy a US government savings bond? ›
When you buy a U.S. savings bond, you lend money to the U.S. government. In turn, the government agrees to pay that much money back later - plus additional money (interest).
Are US savings bonds high risk? ›
Key Takeaways
A series I bond is a non-marketable, interest-bearing U.S. government savings bond. Series I bonds give investors a return plus inflation protection on their purchasing power and are considered a low-risk investment.
How much is a $100 savings bond worth after 30 years? ›
How to get the most value from your savings bonds
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
Lack of inflation protection: The primary risk associated with EE bonds is the lack of protection against inflation. The fixed interest rate does not adjust for inflation, meaning that if inflation rises significantly, it can erode the purchasing power of the bond's return.
Can you ever lose money on an I bond? ›
You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
Do savings bonds have risk? ›
U.S. Treasury savings bonds are a type of loan issued by the U.S. Department of the Treasury (the Treasury) to individual investors. They are low-risk, interest-bearing securities that individual investors can purchase directly from the government on TreasuryDirect.
