EE-Bond Yield Will Decrease Next Month
If you are among the tens of thousands of Americans who bought Series EE savings bonds in October 1986, there’s some bad news coming your way. Those fat 7.5% returns your bonds have been earning will fall to 4% when they hit the 10-year mark next month.
Dan Pederson, a former Treasury official and savings bond expert, explains that these bonds were issued with original maturity periods of only 10 years.
For the next 10 years, those bonds will float at a market rate, starting at the 4% guarantee currently in effect. The formula for figuring out what those bonds will earn is complicated, but Pederson’s best guess is it will take five years or more for them to climb over 4%.
How significant is that?
Say you purchased a $10,000 Series EE bond 10 years ago. If you thought it was going to earn 7.5% for the life of the bond, you would expect to have $91,051 in 30 years. But you’ll have far less.
Even if the guaranteed rate for the last 10 years goes back up to 7%, you’ll end up with only $61,740, almost $30,000 less, says Pederson.
Many bondholders have already been affected, since bonds issued in 1984 and 1985 also had that high 7.5% guarantee and have already rolled over. But the biggest group bought in October 1985 in the last days of the month.
That’s when the Treasury announced that the guaranteed rate was going to fall to 6% on Nov. 1. In those few bond-buying days, Pederson said the calls at his Federal Reserve bank branch jumped from their usual 50 a day to 10,000 a day. So there are plenty of you out there.
What can you do about it? You may choose to keep your bonds anyway, if you are a big believer in lending money to the government and like the local tax-free interest these bonds amass. But if 4% doesn’t sound good to you, you may want to sell those bonds.
To find out about the value and interest rate on the specific bonds you own, you can ask your banker, but don’t be surprised if he isn’t very knowledgeable or helpful.
You can call (800) USBONDS to get tables of redemption values and other information from the Bureau of the Public Debt. You can pay Pederson’s company, the Savings Bond Informer at (800) 927-1901, to prepare a customized report on your bond holdings.
Or you can contact Union Information Services, a company that sells personalized savings bond reports and also sells software for those who want to analyze their bonds themselves. That firm’s number is (800) 717 BOND.
Finally, here’s another bit of information about savings bonds, gleaned in response to a question from a reader.
What if you are thinking about giving away that stash of bonds to a charity? Sorry, you’ll still have to pay federal income taxes on the interest they accumulated. Unlike other appreciated securities that can be transferred to charities without a tax consequence, savings bonds can only be cashed in and reissued.
You may be able to get your bonds re-registered with both your name and the charity’s name as joint owners, suggests Jack Quinn, executive vice president of Union Information Services. Then, the bonds will pass to the charity upon your death without any tax bills due.