While the U.S. Treasury Department stopped issuing paper savings bond certificates four years ago, many people still have paper bonds stashed away that they will end up cashing in sooner or later.
What many investors don't consider is finding out exactly how much each of them is worth.
That's not the only mistake they make when it comes to redeeming U.S. savings bonds, according to financial columnist Jane Bryant Quinn of AARP Bulletin. And she said those mistakes could be costing bond owners big bucks.
"When cashing in savings bonds, the longer you hold it, the more interest it accumulates until the holding period reaches the 30-year mark," she said. "After that, no more interest accumulates and taxes are due whether you have redeemed the bonds or not. If you sell before five years are up, you pay a penalty equal to three months' interest."
Other blunders that can add up to lost income include: cashing in the oldest bonds first; cashing in so many bonds at once that the cumulative, taxable interest puts you in a higher tax bracket; redeeming a bond on the week before a six-month interest payment is due to be paid; and looking only at the bond's face amount when deciding how many to redeem. Bonds that add up to $3,000 on their face might be worth $6,000 or more, once the interest is counted.
Lynnette Khalfani Cox, CEO of AskTheMoneyCoach.com, said if a person's income is close to the next tax bracket, he or she could get knocked into a higher tax bracket by cashing in savings bonds. In 2015, a single filer is in the 15 percent tax bracket for income between $9,226 and $37,450. But income starting at $37,451 up to $90,750 falls in the 25 percent tax bracket.
Also, Cox said, "It's a mistake to cash in the oldest bonds first because those are the most valuable. It's best to cash in newer ones first. Let the older ones mature, and they'll be worth more."
The process for buying and selling electronic savings bonds is a more automated one thanks to the Treasury Direct online system. Paper bonds present more of a challenge.
"You can likely redeem a savings bond at your local bank or credit union," Cox said. Or you may have to go through the TreasuryDepartment. Treasury Direct, online at www.TreasuryDirect.gov, provides a calculator to help people calculate the current value of their paper bonds as well as a set of FAQs for bond investors.
Tim Grant writes for the Pittsburgh Post-Gazette.