Cash Old Savings Bonds

Like coins stashed in a cookie jar, the money in tied up in that bond is idle; it's better to cash it in and put it to work.

Way back when, someone gave you a savings bond for a special occasion. You probably put it away and promptly forgot about it. Now may be the time to dig it out and cash it in, according to many financial advisors. It’s likely that your bond is one of about $16.7 billion worth of Savings bonds that have matured and are no longer earning interest. Like coins stashed in a cookie jar, the money tied up in that bond is idle; it’s better to cash it in and put it to work.

Some Savings bond owners are hesitant to cash in old bonds because they will owe income taxes on the accumulated interest. Consumer gurus say this is essentially giving the government an interest-free loan. By taking the cash and investing it, you are at least earning money to help pay those taxes. In addition, say tax mavens, the interest on a matured bond is supposed to be reported on your tax return in the year it matures, whether or not you cash it in. To find out how much your bond is worth, you can go to the Treasury Department’s Savings Bond Calculator.

If you have a lot of mature bonds, however, you may not want to cash them in all at once, which could put you in a higher tax bracket. Talk to your tax advisor about making scheduled redemptions. Another common error is to report interest income from your bonds on your state income tax return. Savings bond interest is exempt from state and local income taxes, but you may have to file a separate form to make the adjustment to your income.