Tuesday, July 14, 2009

Savings Bonds: Cash in or let mature?

My godparents always gave me Savings bonds as my gifts for birthdays and Christmas when I was growing up, and my dad recently unearthed a stash of them in a lockbox he'd forgotten about.

Some of the savings bonds have reached full maturity and I've cashed those in and deposited the proceeds into a savings account.

I have 8 bonds remaining that have not yet reached full maturity. I'm debating whether to keep them and let them mature, or cash them in and deposit the money into a savings account or IRA.

Here are the options I'm considering, and the Pros/Cons of each.

Let the bonds mature:
PRO
- Guaranteed rate of return in a government-backed, secure form
- Getting the money would require a trip to the bank, so we certainly won't spend it on a frivolous impulse purchase

CON
- Low interest rate (in the neighborhood of 1 to 1.5 %)
- In case of emergency, access to the funds isn't immediate-- need to go to the bank to cash in.

Cash in and deposit in savings
PRO
- Bump up our emergency savings account
- Likely would earn similar interest to the savings bond, but with easier access to the funds

CON
- Savings account interests can change, and lately they are dropping more than they are rising
- Easier access to the money means that we might spend it on something. Even if it is a "worthy" expense, we'd still be out that little bit of reserve stashed away as savings bonds.

Cash in and use to open a Spousal IRA
PRO
- Potential to earn a higher return than a savings bond or savings account.
- Retirement savings replacement for the 401k contribution I am not longer able to make since I opted out of the workforce to stay home with my kids.

CON
- This option has the highest risk, since neither principal nor interest is guaranteed in any investment vehicle I might choose that would beat the interest rates of the other 2 options.
- Tieing the money in an investment earmarked for retirement makes it the least accesible of any of the available options

Right now, I'm leaning toward cashing the bonds in and putting them in a savings account. I'd love to hear any advice you have to share!

Also see my previous post discussing whether Savings bonds are a good investment today.

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