Thanks to higher interest rates in 1986, savings bonds were a huge deal. Thirty years later, the new year will mark a milestone when millions of Series EE savings bonds bought in 1986 will stop earning any more interest at various months in 2016, depending on when the bond was issued. And those bonds need to be cashed.
But here’s the trick: No one is going to send you any notice on this deal or automatically redeem these bonds for you.
Buying savings bonds was trendy in 1986 because bonds bought from January through October 1986 had an initial rate of 7.5 percent for the first 10 years.
Here are things to keep in mind:
▪ What’s the bond really worth?
A $50 Series EE savings bond with a picture of President George Washington that was issued in January 1986 was worth $113.06 as of December. The bond will earn a few more dollars in interest at the next payment in January 2016.
A $500 savings bond with a picture of Alexander Hamilton that was issued in April 1986 was worth $1,130.60 as of December. The next interest payment is in April 2016.
▪ Where can I cash the bond?
Often, it’s easier to cash U.S. savings bonds, especially large amounts at once, if you’re a customer at a given bank. Banks will have different policies on how much they will redeem in one visit. Some banks and credit unions also will not redeem savings bonds at all.
▪ What kind of taxes will I owe?
What you originally paid for the savings bond — or the principal portion — is not taxable. The interest earned is taxed at regular income tax rates, not as a capital gains income tax rate.