Your Questions Answered: Should I Cash Out A Savings Bond?

I received an e-mail from the son of a client asking me, “Should I cash out a savings bond that I just found out that I own?”

First things first, what exactly is a savings bond? Well, it’s basically a loan you give to the government. In return, they pay you interest over time. There are different types of savings bonds, like Series EE and Series I bonds, each with their own rules and interest rates.

Now, let’s talk about the pros and cons of cashing out your savings bond.

Pros:

  1. Immediate Access to Cash: If you need money for an emergency or a big purchase, cashing out can provide you with quick funds.
  2. Interest Rates: Depending on when you bought your bond, the interest rate might not be as attractive as other investment options available today.
  3. Financial Goals: If your financial goals have changed since you bought the bond, cashing out might help you reallocate funds to better meet those goals.

Cons:

  1. Penalties: If you cash out before the bond matures (usually 20-30 years), you might face penalties or lose some interest.
  2. Tax Implications: The interest earned on savings bonds is subject to federal income tax. Cashing out could bump you into a higher tax bracket.
  3. Guaranteed Returns: Savings bonds are low-risk investments with guaranteed returns. Cashing out means losing that security.

So, should you cash out your savings bond? It really depends on your personal situation. Here are a few questions to ask yourself:

  1. Do I need the money right now?
  2. Are there better investment opportunities available relative to my financial objectives?
  3. How close am I to the bond’s maturity date?
  4. What are the tax implications for me?

If you’re still unsure, it might be worth talking to a financial advisor. They can help you weigh the pros and cons based on your specific circumstances.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.