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You can learn a lot about history by studying it but to truly understand it, you had to have lived through it. This holds true for the popularity of financial instruments as well. This is a companion piece to Jonathan Clements’s recent post, “Seeking Uncertainty,” in reference to Savings Bonds.
Savings Bond mania was in full swing during World War II. They were introduced by President Franklin D. Roosevelt in 1935, before I was born. But I can remember, even at 5 years old, the tremendous push and popularity for buying savings bonds. Artists made colorful, eye catching posters encouraging Americans to save 10% of their wages to “buy their share of freedom”. Movie stars went on bond rally tours to induce their purchase. The movies had shorts exhorting patrons to buy “freedom”, liberty” and “war bonds”, as they were sometimes called, with a reminder that patrons could even buy them at the movie theatre. Savings Bonds made you feel patriotic. You were helping the war effort.
In 1941, Gene Autry, a popular singing cowboy actor made a recording of catchy upbeat song entitled, “Any Bonds Today”. Bing Crosby and others recorded it too. Irving Berlin wrote the words and music. A repetitive phrase from the bouncy song is still remembered—“scrape up the most you can, here comes the freedom man, asking you to buy your share of freedom today”
Through June, 1970, You could get a savings stamp book from the post office where you could buy 10, 25, or 50 cent stamps you pasted in the book until you had $18.75–enough stamps to purchase a bond worth $25.00 face value. If you’re thinking 75 times 25 cents you are right.
The popularity of savings bonds continued after the war, well into the introduction of “I” bonds in the late 1990s. The benefits of savings bonds were indelibly ingrained in our psyche. Gifts of savings bonds were given to us by grandparents, aunts and uncles for all occasions, even as wedding gifts. They were easy to purchase and came with a nice gift folder. Best of all, they were a low risk, solid investment. But their popularity waned when Treasury Direct took over all functions of the Savings Bond Program. Grandparents and others also gave up on the complexity of purchasing them.
I stopped buying savings bonds years ago. The final maturity years of 30 years seemed so faraway at the time of purchase, I never gave a thought as to how much of a problem it would prove to be, keeping track of them. I had a slew of them, and my husband inherited some from his father—some offering 6% interest. But It was an ongoing chore to figure out the optimum time to cash them without triggering tax complications; and they were onerous and time consuming to cash in. Off putting as well, the rules kept constantly changing.
Time is not on my side and Savings Bonds have long since lost their luster for me. I agree with Jonathan Clements’s wise assessment of them as being a hassle for investors and for those settling estates, but I get nostalgic when I think of the Andrews Sisters singing and jivin’ to “Any Bonds Today.”
Reminiscences of a bona fide, but perspicacious, Lady Dinosaur.
Like many others we became interested in I-bonds during the 2022 inflation rate peak. We cashed our matured e-bonds and started buying I-bonds every 6 months since then. This year instead of buying more I-bonds we are “rolling over” the 0% fixed rate I-bonds from 2022 and buying replacement I-bonds with the current 1.2% fixed rate. This is safe way to satisfy my itch to “do something” during the current market decline.
I would prioritize “I” Bonds that have a 0 fixed rate. You will benefit from the higher rate over the long run.
Remember any bond you purchase now can’t be redeemed for a year, so make sure you won’t need that money for a year.
you’ll pay an early withdrawal penalty when you cash out I bonds within five years but you can minimize the penalty if you time it correctly.
Great decision, and I cashed in all those savings bonds in 1996, now very glad I did. Bought a couple I-Bonds in 2022 but sold them in 2024, even that felt like a hassle and it was all done on my computer. I am free of ALL bonds and very happy about it. I am 15% cash using internet banks to get the highest interest rate, and the works for me. That 15% cash will get me through this panic selling because of tariffs. For Stocks Stay the Course.
Stay the course is a tried and true exercise. For those of us who are further along the retirement pipeline, it may be a little more tenuous. No one knows how long a downturn could last and the odds of my husband and I living through another bull market are slim.
But, we’ll face this with as much equanimity as we can and hope for the best.
Right now there’s too much hand-ringing. The other countries may open up and President Trump may come back to the table. People are not used to major changes and fear a recession. Cooler heads will hopefully prevail.
None of us wants upheaval. I think we should all want a good outcome for the sake of our country and the good of all citizens.
After we engaged our financial advisor 8 years ago and we agreed to a strategy including a significant allocation to TIPs, and our advisor (like Jonathan) noted the hassle of settling an estate, I went through a year long program of selling I bonds, selling them after their semi-annual or annual maturity date so as not to lose 3-month’s interest. Years earlier I had converted all my paper bonds to electronic by sending them in to TD, which made the process simpler. This also simplified our portfolio.
So many people feel relief when completing this simple task. I followed your example and saved myself the safety deposit annual fee.
Thanks for affirming a more efficient way. And thanks for commenting, Rob.
The tax problem I have typically seen when matured U.S. savings bonds are cashed after the owner’s death is that the deferred accumulated interest is generally reported as income in the year the bonds are cashed by the person who inherits the bonds. If the bonds are not matured at the death of the owner they are appropriately reported taxable to the person who cashes them under the tax rules. Such income is income in respected to a decedent, much like a withdraw from a inherited traditional IRA.
Tax penalties for failure to file a return or pay tax under the 26 USC 6651 law can often be waived under the provisions known as first time abatement for such failures. The tax and any interest will not be waived.
If the matured bonds, typically old paper bonds, are found after the death of the but before the decedent’s final 1040 is filed then I have seen the interest income from such bonds reported on the decedents final 1040 and as the interest income is reported to the person cashing the bonds then the person cashing the bond also reports that income on their 1040 schedule B with a following line with a same negative amount to “Nominee – decedent’s name and SSN” to zero out the income on the tax return person cashing the bond. This is only appropriate for matured bonds as such income is recognized for tax purposes the earlier of the date matured or date cashed. Often the person cashing the inherited bonds just reports the income on their return and moves on in life. I am not aware of the Treasury actually reporting interest as a taxable event due to the bond simplify maturing.
Yep, redeeming savings bonds after death of the owner can be an administrative headache that is better avoided.
When my mother passed, we opted to have her estate pay the taxes on the interest accrued on her bonds (paper I-bonds) as of her date of passing. As she was in a much lower tax bracket than the beneficiaries, that worked out well. If you opt to go this route, be sure to get copies for each beneficiary of the complete tax return showing the tax paid by the estate. As we all were equal benefactors (x) dollar wise, your share of the taxes paid is of course 1/X.
Sometimes the estate deductible expenses exceed the estate taxable income on the 1041 the estate files. Sometimes the net estate income is a nominal amount. The estate 1041 starts upon the death of the decedent and the executor may pick a fiscal year instead of a calendar year.
If the estate has just a nominal amount of taxable income in it’s 10% bracket letting the estate pay the tax can be an administratively easier route. If the estate makes distributions of income within the chosen fiscal or calendar year then those distributions will generally carry the ordinary income out to the beneficiaries on a 1041 K-1 limited to the lesser of the distribution or the net income in the estate year end. Often executors pick a calendar year for the year end of the estate for ease of administration when the 1041 will have no or low expected taxable income and may wait to make a distribution until after the initial tax year of the estate.
The income tax brackets of an estate are very compressed compared to the individual brackets and the estate reaches the highest bracket of 37% in 2024 when the estate reaches net income of just $15,200.
The 2024 estate income tax brackets are –
Taxable Income 2024 Tax
Not over $3,100 10% of the taxable income
Over $3,100 but not over $11,150 $310 plus 24% of the excess over $3,100
Over $11,150 but not over $15,200 $2,242 plus 35% of the excess over $11,150
Over $15,200 $3,659.50 plus 37% of the excess over $15,200
As complex as income tax can be for individuals my opinion is that estate income tax laws and regulations can take the complexity and pitfalls to a higher and much more tax expensive level.
Best, Bill
Very generous of you to expend your time and knowledge, so freely,
Bill. You’re one of a kind. Thank you.
I think that’s the easiest and best way for all concerned. Especially since there were other beneficiaries. Thanks for pointing this out, GW
It does get complicated, Bill. When my mother-in-law died she and my husband had a joint Treasury account. Even though it was joint, everything had to be reported as part of her estate. Savings bonds the same. We let the estate lawyer handle all the paperwork work. It was 20 years ago but I think he had to file an estate tax return.
Savings Bonds co owned with his father all had to be re-issued with new co owner named. It was all very disruptive and time consuming.
Thank you for your interest..
I cashed in five $1000 I Bonds at the bank today, netting over $16K. In a perfect world, I would have kept them all to maturity as their fixed interest components were relatively high. As it is, I feel relieved that I was still able to redeem them without dealing with a faceless bureaucracy as Bill C describes below. One more step in the direction of financial simplicity.
All is good, Ken. One less thing to concern yourself with.
It used to be a balancing act with me, dealing with the interest earned on the bonds, and keeping within the bounds of the maturation dates; complicated by the effect the additional interest income would have on our tax return. There was a lot of planning involved.
At one time, you had the option of extending the the final maturity dates by an additional 20 years if you converted EEs to HHS—more complications and calculations. Right After I elected to do that they dropped the interest rate on HHs from 4% to 1 and a half percent, and without warning. I promptly redeemed them. Banks didn’t cash them so had to mail them to Minneapolis with more paper work and bank guarantees. Glad those days are over.
Marjorie, your experience with the EE/HH conversions and redemptions is exactly the kind of thing I wanted to avoid. The potential hassle down the road isn’t worth the extra dollars I might have gleaned by holding on to my “premium” bonds until maturity.
Smart man, Ken. The rules keep changing.
Yes, they do, Marjorie. Thanks for keeping this topic on our radar screens. I enjoyed reading the historical perspective you shared as well.
I somewhat agree with Jonathan on individual bonds maybe not being worth the hassle- though I still do use them. I’ve purchased I bonds for over 25 years (and glad I did)- they’ve proved to be a worthy investment (they were my best performing investment during the “lost decade” of the early 2000s), and I continue to purchase them, but am now considering the purchase of individual TIPs in the place of I bonds. The I bonds have become a yearly source of my retirement cash flow in recent years.
I am considering the possibility of moving to a total bond fund in the future, and do allocate a portion of fixed income to one (for simplicity), but haven’t gotten there yet with a larger portion of my fixed income allocation. I largely avoided the bond fund meltdown a few years ago- I did market time based on how I viewed the ultra low yields of bond funds at the time. Whether I was lucky, or perceptive, I like to think the latter, but perhaps I’m deluding myself…
Bill, whether lucky or perceptive, seems like you put a lot of thought in your bond strategy and were successful in attaining your goals.
Back in the 90s, when “I” bonds were first introduced, there was a syndicated financial radio show, hosted by a husband and wife, Ken and Daria Dolan. They gave conservative, plain vanilla financial advice, vital to average Americans. I was still working at the time but listened to them on the radio on my lunch hour.
Other employees used to tease me and say, “she’s listening to The Dullins.” But it was how I learned about strategies for investing in Treasury’s and savings bonds.
it wasn’t dull to me.
Based on what I learned, I tiptoed into “I” bonds and they proved worthy.
Like you, I’m at a time in life when I want everything to be simple but also, like you I’m glad for the savings bonds.
important to note: There can be penalties for not redeeming matured savings bonds. https://accountinginsights.org/penalties-for-not-cashing-matured-savings-bonds-explained/
Marjorie, I fondly recall receiving bonds as a child, and giving bonds to our children and nieces and nephews. I worked in the Aerospace and defense industry for over 40 years. It was a sign of pride if our company ranked highly in # of bonds purchased, I moved all my paper bonds to Treasury Direct about 4 years ago. It wasn’t that difficult and I’m glad I did. I still buy the grandkids Bonds on birthdays, but it does’t have the same impact as the beautiful paper bonds you describe.
Some people make life easy for themselves by finding a more efficient way to handle their financial affairs and you’re one of them. For mysterious reasons we procrastinate doing things the easier way; making life more complicated than it needs to be.And we all do it to a degree. Transferring the bonds to TD was the smart thing to do.
People of older generations, like your parents or grandparents were really sold on bonds. it was a good way for the average small saver to put aside some savings. A newlywed cousin bought their washer and dryer with the proceeds from bonds their parents bought them as children. And I can still recall President John F. Kennedy’s
Speech, from the 60s, encouraging citizens to buy “freedom” bonds.
It was fun to write the post, to remind others of a more innocent time in our country, and bring back a small part of Americana.
Thanks for commenting, Rick.
After reading this it occurred to me I had seen some UK savings bonds in my immigration folder. Turns out, I have three premium bonds worth one pound each bought back in the 60s (I have no idea why). Not worth the postage to redeem, I thought, but a little online research established that there’s an ongoing lottery for premium savings bonds. When I checked, I discovered that back in 1987 one of the bonds won 50 GBP. Now that is worth a little effort to claim.
Thanks for the article, I would never have looked otherwise.
Congratulations, Kathy. What a happy surprise! Thanks for sharing your good news.
My father got his first regular job in 1943, at age 14, working in a grocery store. He had a number of stories of his memories of that time in his life, mostly about the characters among the citizens in his small town that visited the grocery store. But one story was indicative of his character apparent early in life. He made in wages, as I recall, seven dollars and some change each week. He kept the two plus and gave five to his mother to buy bonds. He continued to practice this saving habit, though not with bonds, throughout life.
Good savings habits and good character are related. Your father did what he felt was morally right. A good role role model for you, Ed.. Thanks for your heartwarming comments.
I do recall when gifting bonds was common. I even had some given to me as a child. They were given as an incentive not to spend and we gifted them to the children of others with that intention, too.
As noted, 30 years goes by quickly and one day while cleaning my clothing drawers I found a small stack of savings bonds. I cashed them in past full maturity and bought CDs. As I recall I had to mail them.
More recently, with Treasury Direct I continued to buy treasuries and I-Bonds. Today the banks pay well enough that I only purchase I-Bonds.
They can serve a purpose, Norman. I’ve often used them instead of an ATM for ready cash. of course they also grow tax deferred until you cash them in.
I Keep them in a safety deposit box as there’s the devil to pay and all kinds of paperwork work to file if they’re lost. Transferring to Treasury Direct is sensible way to go.
There are 98 million matured unredeemed savings bonds held by investors in the United States.
As of today, per TD’s site, that’s $39.2B of matured, unredeemed savings bonds. Ridiculous. Similar to unclaimed money held at the state level.
Who knew? Look out for doge.
Treasury Hunt is an online search tool provided by the U.S. Department of the Treasury to help individuals locate matured, unredeemed savings bonds, which have stopped earning interest after 30 years. You can access the Treasury Hunt tool on the official TD site. Follow instructions.
To track bonds this way, the issue date must be before 1974. You can also complete FS FORM 1048 and mail to Treasury Retail Securities, Minneapolis, MN.
Savings Bonds never expire.
Thank you, Marjorie. It is a good tool. I believe the new form is FS 000140 (January, 2025).
Thanks for the update!
I have a bunch accumulated my working years. Each year more hit the 30 year mark. It is getting harder to cash in. Many banks won’t do it. My bank put a $500 limit on cashing them. This year I am going to have to mail them to the Treasury Dept. A hassle indeed. 🤑
Dick, It’s not that hard to convert them to electronic versions. I wrote about this a while ago.
I would hesitate to convert paper bonds to electronic currently with treasury direct. I’ve done this for several years with I bonds purchased with tax refunds. Each year the process to convert them seems to take a bit longer. I’m currently dealing with bonds I sent in last August that still have not been converted. I’ve called TD and they cannot tell me when the conversion will happen. Asking to speak to a manager was not allowed, so I contacted my congressman’s office to help with a follow up. I’ve vowed after this experience to not invest further funds with TD that will involve human contact…
I’m headed to the bank today to redeem another batch of I bonds while they will still do it. Stories like this are chilling, and I can’t imagine service improving in the foreseeable future.
Bill, thanks for the feedback. That is disturbing. When I did it 4 years ago it was fairly straightforward, if a bit clunky. There is no reason for that.
Some banks won’t cash at all, others have limits ,while still others will cash higher denominations but only if you deposit the proceeds in your account at the bank.
In trying to find out why the banks won’t cash them anymore, I get the impression they just don’t feel like doing it.