Author Topic: EE Bonds - should I cut my losses?  (Read 2616 times)

yolfer

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EE Bonds - should I cut my losses?
« on: January 29, 2013, 08:26:33 AM »
My parents bought me EE Bonds as a youngster and I still have some of them (i.e. I physically own them). I think the conventional wisdom in my family was to wait until they were worth their face value to sell them, but at today's rates they're maturing sooooo slowly. (They were issued in 1998 - 2002 and they're earning aprox 0.72%)

Am I being impatient, or should I sell them at their current value (anywhere from 67% to 83% of their face value) and invest the proceeds elsewhere (i.e. according to my allocation strategy)?

(I'm aware that selling them is a taxable transaction)

Thanks!

Update:

I did a bit of research on the treasury direct website and learned the following:

17 years after the bonds were issued (for me, that starts in 2 years), they reach "original maturity" which means that no matter what rate of return they're earning, the gov't guarantees that they'll be worth their face value.

So even though they're earning a dismal rate right now, if I hold them until "original maturity" it will be like revisionist history because they'll suddenly be worth their face value. That's an effective 4.1% compound return, more along the lines of what I'd expect an asset like bonds to be earning.

It's still not cut and dry (since my portoflio on average is earning a lot more than 4%) but just some additional information in case others are faced with the same decision.
« Last Edit: January 29, 2013, 12:06:20 PM by yolfer »

yolfer

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Re: EE Bonds - should I cut my losses?
« Reply #1 on: February 01, 2013, 10:03:37 AM »
I learned one more important thing about EE Bonds: if you sell them to pay for qualified higher-education expenses, the sale is tax free!

http://www.treasurydirect.gov/indiv/planning/plan_education.htm

There are a lot of caveats, but it's definitely something to consider (my oldest is 9 so it would be a while).

dudemize

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Re: EE Bonds - should I cut my losses?
« Reply #2 on: February 01, 2013, 12:04:18 PM »
yolfer, have you looked into I Savings Bonds?  I like them much better than EE bonds.  I keep my emergency stash in I Bonds.  Personally, I would cash in your EE bonds and purchase I Bonds.  You can only buy $10,000/yr per SSN, however.  The same tax benefits for education purposes applies to I Bonds as well.  Keep in mind that you cannot cash them in for 1 yr from the issue date. 

yolfer

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Re: EE Bonds - should I cut my losses?
« Reply #3 on: February 01, 2013, 03:22:33 PM »
Cool, thanks. I'll check that out.