To cash in a savings bond, you can either try a bank branch or mail it in to the U.S. Treasury. Chip Somodevilla/Getty Images
Savings bonds have long been a reliable gift, often given to children by grandparents or parents to teach the values of patience and practicality. As of July, there are $68 billion worth of savings bonds in this economy, but they’ve become much harder to cash at banks, as New York Times finance reporter Rob Copeland discovered firsthand.
Copeland spoke with “Marketplace” host Kai Ryssdal about his experience. The following is an edited transcript of their conversation.
Kai Ryssdal: For those unfamiliar, how do these savings bonds work?
Rob Copeland: So here’s how they’re supposed to work: You buy a bond at half price, for, say, $50. It comes in a paper slip, and you cash it in in 20 years, and it’s worth twice as much as you paid.
Ryssdal: And that’s the interest that accrues, and then it comes to term, and you go and you cash it in. The catch, of course, is in the cashing it in, which you write about in this piece. Tell me about that.
Copeland: Well, when these savings bonds came out at the height of the Great Depression, they were sold as “as good as cash.” You would buy them, and then you could cash them in at any bank or any financial institution. But what’s happened over the past few years is a lot of banks are starting to reject them. Because these are U.S. government bonds, so they’re not a loan from JPMorgan Chase. That’s meant that for a lot of people, what they thought was cash was actually just a worthless piece of paper.
Ryssdal: Yeah, let’s go over that, again. You walk into JPMorgan or Citibank or whatever, and you give them the $100 bond that your grandmother gave you 25 years ago. The bank has to wait for the Treasury to pay them back, should they pay you out, right?
Copeland: Exactly. They’re essentially fronting you money. So they’re giving you the government’s money, but then they have to chase after the government. And let’s say that you gave them a piece of paper that was a fake bond. Now they’ve given you cash, and they’ve been fooled.
Ryssdal: And is that what’s going on here? Are they worried about, you know, frauds and fakery?
Copeland: So that’s what they say they’re worried about. There’s no doubt there is a level of fraud. There’s also a level of fraud with personal checks. There’s a level of fraud all over society. What’s also happening here is that when a bank does that transaction for you, they make exactly zero cents. And in many cases, these banks just don’t want to do it anymore.
Ryssdal: Along those lines, actually, of there not being a whole lot of interest accruing, you point out that give or take half the bonds that are out there sitting in people’s drawers or whatever are well past maturity. And thus, it’s just us letting the government hang on to our money.
Copeland: So this was wild to me. I received a gift, which were the savings bonds, some of which were from when I was born. And after 30 years — I’m 36 — after 30 years, these bonds stop accruing interest. And so I reached out to the Treasury, and I said, “How many people are in a situation like me? How many of them have these bonds that will never be worth more than they’re worth now?” And almost half of them have that characteristic; $32 billion, which as I write in the piece, is basically an interest-free loan from the citizenry to the government.
Ryssdal: There are also, as you talked about in this piece, people who have not small amounts of money that they find in their, you know, passed-away relative’s attic, or what have you. And they actually try to go direct to Treasury and get it done. And it’s even convoluted that way.
Copeland: Exactly. So the other option, besides going to your bank, is you can mail it in. Yes, actually put it in an envelope and mail it in, basically cross your heart and hope it gets there. The Treasury is supposed to cash it for you. At best, it will take them a few months; at worst, God only knows where it goes, or Treasury comes back to you after a few months and says that you didn’t tick the right box or you didn’t give it the right stamp. Or, for instance, if you did it for an elderly parent or family member, you didn’t include the right paperwork saying that you are allowed to do that for them. To the people I spoke to, it seems like the Treasury will go to any length to not pay them for these bonds.
Ryssdal: So what happened with you and the 30-year bonds that you got when you were born?
Copeland: I’m so glad you asked. So initially, I’m a Chase client, which is not an endorsem*nt of Chase, obviously. And I went to the bank next to my apartment, and they told me they would not cash any of them. And I went to The New York Times credit union, they would not cash any of them. I went to my online bank, same deal. So what I did is I wrote a story about it. And I wrote about everyone else’s experiences and really just briefly mentioned mine. After the story published, I went into the Chase bank next to The New York Times office in midtown Manhattan. I did not identify myself as a reporter. I had the exact same paper bonds that had earlier been rejected. They couldn’t have been kinder. They said they had just received a notification from JPMorgan Chase updating them on their policy. She apologized to me, but it wasn’t because she wouldn’t cash them. She said, “It’s going to take me about five minutes to do the paperwork.” So I stood there, the money was deposited into my account. I spoke truth to power. And it was it was quite the ending for me.
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As a financial expert with a deep understanding of the intricacies of savings bonds and the financial system, I can shed light on the key concepts discussed in the article.
Savings Bonds Overview: Savings bonds are financial instruments that individuals purchase at a discounted price, with the promise that they will mature and be worth a higher value in the future. The bonds are typically issued by the U.S. Treasury and are considered a safe investment, often used as gifts or long-term savings vehicles.
Purchasing and Maturity: The process involves buying a bond at a reduced cost, such as $50, and letting it accrue interest over a specified period, usually 20 years. At maturity, the bond can be redeemed for its full face value, effectively doubling the initial investment. This process is intended to teach the values of patience and practicality.
Challenges in Cashing Savings Bonds: The article highlights the growing difficulty in cashing savings bonds at banks. Originally marketed as "as good as cash," these government bonds have faced increasing rejection by banks in recent years. The primary reason behind this reluctance is that banks, when cashing in the bonds, essentially advance the money to bondholders and then have to wait for reimbursem*nt from the U.S. Treasury.
Bank Concerns and Fraud Risk: Banks express concerns about potential fraud and fakery related to savings bonds. The fear is that individuals might present counterfeit or invalid bonds, leaving banks in a precarious position of having advanced funds without legitimate backing. This fear, combined with the fact that banks don't earn any money in these transactions, has led to many institutions refusing to cash savings bonds.
Interest-Free Loans and Matured Bonds: A significant revelation in the article is that a substantial portion of savings bonds, nearly half, are well past their maturity date. After 30 years, these bonds stop accruing interest. This means that individuals holding such bonds are essentially providing an interest-free loan to the government, as the bonds will never appreciate beyond their current value.
Challenges with Redemption: The article also explores the challenges individuals face when trying to redeem savings bonds. Banks are becoming less willing to facilitate the process due to the reasons mentioned earlier. The alternative method suggested is mailing the bonds directly to the U.S. Treasury, which introduces its own set of complications, including delays and potential errors in paperwork.
Personal Experience and Resolution: The author, Rob Copeland, shares his personal experience of trying to cash in 30-year-old savings bonds. Initially rejected by multiple banks, including JPMorgan Chase, he highlights the challenges consumers face. However, after writing a story about his experience, he successfully cashed the bonds at a Chase bank following a change in the bank's policy.
In conclusion, the article highlights the evolving challenges in cashing savings bonds, including concerns by banks about fraud, the unprofitability of the transactions for banks, and the significant number of bonds that have stopped accruing interest. The personal experience of the author adds a real-world perspective to the broader issues faced by individuals attempting to redeem savings bonds.
