Government Bond Question: Maximize my Investment


I have a question I think I know the answer to…just want to run it by people smarter than I.

I have handful of Series EE bonds reaching their 30 year maturity this year. I believe the interest rate on these bonds is locked to the date of issue…lets assume 4% or so.

I have a money market account that pays 4.5%. Does it make sense to cash these bonds in after their next interest accrual period before they reach full maturity? My wife thinks that the 4.5% yield on the money market will be more beneficial than holding these bonds to maturity at 4%…that makes sense to me, but at the same time seems a little odd - the compound interest accruals late in the life of the bond seem to be higher than what I’d get on the money market.
I forget if the above rates are effective yield or stated yield…lets assume they are effective yield and interest accrues on each on a daily average basis just to simplify the question.



I think you’re correct that EE bonds from the 1970s had a fixed rate of interest for the life of the bond. Check the US Treasury web site and its bond calculator tool to make sure.

Also check when the interest accumulates. I have a vague recollection that US savings bonds accumulate interest every six months. If this is correct, then your calculations should take into account the correct amount of foregone interest.

And also compute the state tax impact. US government bonds are normally exempt from state income tax.