By Jean Gruss
Before 401(k) accounts, there were U.S. savings bonds.
In the years following World War II, companies and the government encouraged people to save for retirement using U.S. savings bonds through payroll deduction. In subsequent years, savings bonds continued to be popular as gifts, especially for special occasions like birthdays and holidays.
But as easy as it has been to buy savings bonds, keeping track of them, determining what they’re worth and what interest they’re earning is a tedious task. Amazingly, Uncle Sam is getting a $26 billion interest-free loan because many people don’t realize their savings bonds have stopped earning interest, says Daniel Pederson, an expert on savings bonds who runs The Savings Bond Informer, a consulting firm for individuals and financial professionals. “It represents about $1 billion in lost interest to bond owners,” he says.
When adult children begin getting more involved in their parents’ care and finances, it’s a good idea to include savings bonds in any financial-planning conversations. Seniors may have forgotten they owned them because they were held in paper form and might have been stashed away in a box or drawer for years.
Be a Savings Bond Sleuth
As a caregiver, you’ll want to track down every savings bond your loved one has owned so you don’t overlook any money that’s owed to them. While it sounds time-intensive, this process is actually pretty simple.
To get started, you’ll need to fill out FS Form 1048: Claim for Lost, Stolen, or Destroyed United States Savings Bonds. The form and the instructions on how to fill it out can be found here. The Bureau of the Fiscal Service of the U.S. Department of the Treasury handles these requests. “They’ll do some research and send everything back on file for that person free of charge,” says Pederson.
Pederson suggests providing all the names and addresses that might be associated with the savings bonds because social security numbers weren’t linked to older bonds. For example, Daniel Jones could have also purchased savings bonds under the name Danny Jones.
The U.S. Treasury also has a website called Treasury Hunt (https://www.treasuryhunt.gov/) that lets you search for missing savings bonds. This database only contains records on the more recent series EE bonds and on E bonds issued after 1973.
If the Treasury verifies you own missing savings bonds, the agency will replace them at no cost if they’re still earning interest. However, you won’t receive replacement paper savings bonds. The agency stopped issuing paper savings bonds in 2012 and now handles all transactions electronically through its TreasuryDirect program (www.savingsbonds.gov). All you need to do is set up a free TreasuryDirect account.
If any of the missing bonds have reached maturity and are no longer earning interest, the Treasury will redeem them for you and you will be responsible for the associated income tax.
Managing a Savings Bond Portfolio
The key to managing a savings bond portfolio is to identify all bonds and create an inventory, including serial numbers and dates purchased. This is important because different bonds earn different interest rates, depending on when they were issued.
If you have a few savings bonds, using paper and pen should be sufficient to track them, but if you have numerous bonds to manage, consider tracking them electronically using TreasuryDirect’s SmartExchange program. This program allows you to exchange older paper savings bonds for electronic bonds so you can manage and redeem them online.
The Treasury offers several other tools for savings bonds owners, including the Savings Bonds Calculator, which tells you what your bonds are worth, and the Savings Bond Wizard, a downloadable software program to help track your investments. Still, some people prefer to avoid putting their personal information online. “The idea of putting financial data on the Internet can be scary,” Pederson acknowledges. If you’re not a do-it-yourselfer or you are overwhelmed by the task of managing another person’s investments, consider hiring a professional to do the job for you.
Some Bonds No Longer Earn Interest
Take the opportunity to discuss redeeming savings bonds that no longer earn any interest with your loved one. For example, EE series bonds earn interest for up to 30 years if you don't redeem them before they mature. The longer you hold the bonds, the more they are worth, but after the 30-year maturity date, these bonds stop earning interest.
Make sure you aren’t giving Uncle Sam a free loan. Bonds that have stopped earning interest should be redeemed. The following savings bonds no longer earn interest.
Savings Bond Series
January 1980 through March 1987
January 1980 through March 1997
Series A, B, C, D, F, G, J, K
For more detailed information about savings bonds that no longer earn interest, visit the TreasuryDirect website.
A Note about Taxes
You can redeem savings bonds at many banks, but don’t look to them for advice about a selling strategy. Pederson says he once surveyed banks and found that 95% of them gave the wrong savings bond advice to customers.
A redemption strategy is crucial because cashing in bonds all at once could incur a significant federal income tax bill. When a bond is cashed in, reaches maturity, or is transferred (reissued) to another owner, taxes must be paid on the accumulated interest income, not the “face value” of the bond. Income tax is due either in the year you redeem a savings bond or the year it reaches maturity, whichever happens first.
Although it’s less common, some people elect to report the interest on their savings bonds every year. It’s important to take a look at past tax returns to be sure taxes on redeemed bonds aren’t being paid twice.