Is There a Valid Reason Why Investors Don't Cash in Their Savings Bonds?

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For a nation caught in the after-effects of one of the most depressing economic downturns in memory, you’d think people would be galvanized into setting their financial houses in order, to plug all the leaks and to make sure that they did everything possible to make a little extra scratch investing right. But apparently, it still hasn’t really hit home with most people. All put together, Americans have more than $15 billion worth of matured savings bonds socked away, that they aren’t redeeming. These would be savings bonds in Series  E, EE, H, HH and others. All these people out there have their pieces of paper gathering dust unredeemed in files and desk drawers when it could be re-invested to make them a good bit of interest.

When savings bonds mature,  they don’t expire or anything; they just stop earning you anything in interest. To continue to hang on to those bonds even when they aren’t earning you anything would be just a way to keep the money safe; you might as well put it in the chest and bury in your garden. One wonders why people care so little; the fact that savings bonds yield no more than 1% or so in interest could be a part of the reason. But over time, 1% can add up to something substantial.

There is another reason why people put off cashing in their savings bonds – they know that they will owe taxes to the government on the interest they make. They want to not cash anything until they are ready to pay taxes on the interest. Well, if you hate giving the government anything, to not cash your bonds is just giving them your money interest-free. Doesn’t that sound even worse? Some people leave bonds lying there for five years before they redeem them. Just think of the interest they would have made – it could even have covered their taxes on the interest. The government tries to do the right thing, trying to contact these careless investors to remind them. And they usually get to hear a bunch of sentimental reasons why people won’t cash them in. Some people feel that they bought government bonds to help the government out in the middle of a war. They don’t want to take the money back and withdraw their help. Some people feel that if they cash them in, they’ll just go and spend the money; they want to let it be for a time when they will really need it.

However, as much as it makes sense to redeem savings bonds, there is something to be said about holding on in certain specific circumstances. If you have a large sum locked up in your savings bonds, cashing them all in at the same time bringing so much money in, in the current financial year, could get bumped up to a higher tax bracket. So holding onto them and cashing them in a few at a time could make sense. When you actually get around to redeeming them, in most cases, you’ll need to go to the bank or credit union you got them from. Make sure that you know how much the government needs to pay you – use the calculator at the TreasuryDirect.gov website. You can also send your bonds in by mail to the federal government to redeem them. You’ll be asked to go verify your signature at some bank or financial institution, and then you’ll get your check.

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