Dear Dr. Don,
My kids are fortunate to have grandparents that bought them savings bonds at various milestones in their lives. My question is: Do savings bonds continue to pay the same rate of interest that they did during their maturation years, or does the interest change once the bond matures? Thank you in advance for your suggestions and guidance.
- Richard Redeem
Savings bonds stop paying interest when they reach their final maturity. Older savings bonds had an original maturity and then an extended maturity period. The section on EE/E bonds' rates and terms on the TreasuryDirect website explains the maturities and interest rates for Series EE/E savings bonds. Series I bonds mature 30 years after their issue date.
I'd suggest inputting the children's savings bond portfolios into TreasuryDirect's Savings Bond Wizard. The Wizard will tell you if the bond has matured, what it is worth, how much of that value is interest income and what the bond's yield was over its maturity. If the savings bond hasn't matured, the Wizard also will tell you its current yield.
If the savings bond owner has deferred payment of the federal income tax due on the interest earnings, it is due in the tax year that the savings bond matures. If their grandparents bought the bonds for them and the bonds are registered in the children's names, they won't qualify for the educational tax exclusion for qualified higher education expenses.