Here’s a blast from the past. I think I was reading an article about how savings bonds stop earning interest after 30 years, and so I asked my mom if she bought any bonds when I was born. I don’t know why, I figured that’s just what people did back then. It turned out she did, and the earliest bonds happen to stop earning interest
next this month. She dug them out of storage, and sent me a scan of them:
She bought an EE savings bond with a face value of $100 for the purchase price of $50 in February of 1981. I was two years old. Using the savings bond calculator at TreasuryDirect, I found the current value to be $300.04. So over the last thirty years, the value went up 6x. This works out to an annualized return of about 6.1%.
According to TreasuryDirect.gov, for bonds issued before November 1982:
Bonds which have not reached final maturity are earning interest at either guaranteed or market-based rates; whichever produces the higher redemption value.
The guaranteed “original maturity period” was 9 years for this bond, which meant it was guaranteed to be worth the face value of $100 after 9 years. That works out to an 8.0% annual interest rate. If only we could get such a guaranteed return now, but the early 80s was a time of high inflation.
When the original maturity period ends, the bond enters a new 10-year maturity period where the government can reset the minimum rate. That’s why my bond is now earning only 4%. I can’t find the market rate for 1981, though. I could probably calculate it if I really wanted to, as it is defined as “85% of the average of 5-year Treasury marketable security yields”. The market rate in November 1982 was 13.05%!
If you have some old savings bonds, find them before they stop earning interest completely. In addition, the IRS supposedly requires you to report the interest as earned in the year of final maturity, even if you don’t redeem it. If you have a lost, stolen or destroyed savings bond, you will need to fill out Form PD F 1048. Also check out this Treausury Hunt page.
By Jonathan Ping | Savings Bonds | 2/4/11, 5:00am