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Wednesday, October 19, 2011

EE Bond Interest Rates - Which Bonds Should I Cash?

I have some bonds ranging from 1988 to 1998 that I needed to cash.  I didn't know which ones to cash though.  My initial thought was to cash the older ones first since it had the most value.  I found out otherwise.

References
I had no idea how complicated the interest rates for bonds were until I read the following pages.
http://www.savings-bond-advisor.com/series-ee-savings-bond-interest-rates/
http://www.savingsbonds.com/bond_basics/ee-savings-bonds.cfm
http://invest-faq.com/articles/bonds-us-savings.html

I decided to make some graphs to help me understand all that mumble jumble.  If you are new to bond interest rates, please read one or more of the links above.  This page is meant to be a supplement to those pages.

Bond Interest Graphs
The interest rate is the y-axis, the years is the x-axis.  The dotted orange line means the Treasury can change the interest rate.  The dashed green line is the bond's original maturity date.  The bond is guaranteed to double in value by the end of the original maturity date.  Bonds then earn interest specified by its specific rules until the 30 years is up.
EE Bonds issued May 2005 - present earn a fixed rate interest (x in the graph) for 20 years.  Then it can be changed by the Treasury.
EE Bonds issued April 2003 - April 2005 have an interest rate (x) based on 5-year Treasury securities.

EE Bonds in this period have an interest rate (x) based on 5-year Treasury securities.
EE Bonds issued May 1995 - April 1997 have an interest rate (x) based on 5-year Treasury securities.



EE Bonds issued March 1993 - April 1995 are guaranteed to have a minimum rate of 4% per year.


EE Bonds issued November 1986 - February 1993 earned a minimum of 6% for the first 12 years and a minimum of 4% since then.

EE Bonds issued November 1982 - October 1986 earned a minimum of 7.5%! for the first 10 years and a minimum of 4% since then.
Conclusion
Seeing how the older bonds are going to keep getting 4% interest until they've matured at 30 years and the newer bonds are currently earning less than 2% (based on bond interest rates in 10/2011), I've decided to cash the bonds that I need starting from the most recent back to May 1995.  







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