I Found These Bonds, Did I Hit the Lotto?

Periodically I get a call that goes something like this: “We moved into this new house and while renovating a room we found U. S. Savings Bonds. What should we do with them?” Or the caller might say, “We were buying used furniture and taped to the underside of one of the drawers was a stash of savings bonds. Are they worth anything?” In the most dubious of questions the finder asks: “I…er…found some savings bonds. How do I cash them?”

Not to be a killjoy, but there is disappointing news for most “finders” of savings bonds. If you are not named on the bonds, you are not the registered owner. If the registered owner(s) is deceased, but a relative of yours, the representative of the owner’s estate should apply to have the bonds reissued. If, however, the party listed on the bonds is not a deceased family member, you are out of luck. Savings Bonds are registered securities. The person named on the bonds as owner, co-owner or beneficiary is the person entitled to the bond. Contrary to popular opinion, finding savings bonds is not like finding cash.

“What should I do?” The government suggests you send the bonds to them. They will determine whether the bonds will be paid out. This raises a sticky question. Do government representatives really make any attempt to find the rightful owner? To this writer’s knowledge, no. Instead, they sit and wait and see if the owner ever shows up to claim the lost bonds. The finder may actually have a better shot at reaching the bond owner.

Is there a finder’s fee? No, but there is no law that I am aware of that prohibits the owner of the bonds from rewarding a finder.

Are the bonds always worth something? Not necessarily. The bonds may have been lost long ago and the rightful owner may have replaced them. If they were replaced, the bonds you found are worthless.

Banks Make Money on the Spread, Why Shouldn’t Savings Bond Owners?

You may have never thought of it this way, but your savings bond holdings have a spread of interest rates. Savings bond rates have ranged from a low of 0% to a high of more than 8% over the last 24 months.

Banks make money by borrowing at low rates such as .05% on our savings accounts, and lending at higher rates like 6% or more on a car loan. The difference is the spread between the cost of what they borrow and the income from what they lend. If I can borrow $10 million dollars at 1% and lend it at 6% I will make $500,000 a year in interest. All my lending, of course, would need to be without default, and that is another story, but the concept is making money on the spread.

Wise savings bond owners can do the same. Suppose you are going to cash $10,000 of savings bonds a year for the next three years while holding others. Wouldn’t it make sense to cash the worst performers and hold the best? How do you know which is which? An analysis of your savings bonds investment will determine the exact rate for each bond and how long that rate will last. While the government data is useful, it does not address some of the analytical questions necessary to maximize your overall return. A savings bond statement (see example) provides the detail needed to maximize your savings bond investment. Whether you like banks or not, this is one strategy that can be borrowed from the big guys and applied to the way you manage your savings bonds.

Newsletter Tackles Tough Savings Bond Issues

Immediate Release: December 2, 2009

Savings Bond Insight: The Next Chapter is now available.  This 12-page newsletter includes commentary on the recent zero percent rate on I bonds; the stock market and savings bonds; the best bonds that have been issued; and which bonds will no longer pay interest in 2010.  Packed with useful information.  $19.95.  To order call 1-800-927-1901 and mention this web site to save $4.95.

Detroit Free Press Asks Advice

Recently, Susan Tompor of the Detroit Free Press asked me about managing I Bonds. My advice, “Redeem Carefully!”

ibonds

Redeem Carefully!

Each I Bond has its own set of data that determines its unique interest rate.  Many bond owners have mistakenly redeemed good performing bonds by not understanding the rates that apply to their bonds.   Never cash in a savings bond without first understanding the interest rate and increase dates for that particular bond.  Ignoring this data will likely result in a loss of money.  Read the whole story here.

If you’re wondering whether now is the time to redeem a bond, or which bonds are your worst performers, I would be happy to help you.