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I have some US treasury EE savings bonds worth 25 face value, purchased more than 10 years ago, none of them fully matured at this time.

Some of the bonds are earning 4% APR, others 1.3%.

Should I cash the 1.3% Bonds early (before 30 year mark) since they are not earning much money? Is there a reason I would not want to do this?

I'm not Debt free, so that money could go to school debt, car loans or mortgage.

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Bonds released at the same time have different interest rates because they have different levels of risks and liquidity associated.

Risk will depend on the company / country / municipality that offers the bond: their financial position, and their resulting ability to make future payments & avoid default. Riskier organizations must offer higher interest rates to ensure that investors remain willing to loan them money.

Liquidity depends on the terms of the loan - principal-only bonds give you minimal liquidity, as there are no ongoing interest payments, and nothing received until the bond's maturity date. All bonds provide lower liquidity if they have longer maturity dates. Bonds with lower liquidity must have higher returns to compensate for the fact that you will have to give up your cash for a longer period of time.

Bonds released at different times will have different interest rates because of what the general 'market rate' for interest was in those periods. ie: if a bond is released in 2016 with interest rates approaching 0%, even a high risk bond would have a lower interest rate than a bond released in the 1980s, when market rates were approaching 20%. Some bonds offer variable interest tied to some market indicator - those will typically have higher interest at the time of issuance, because the bondholder bears some risk that the prevailing market rate will drop. Note regarding sale of bonds after market rates have changed: The value of your bonds will fluctuate with the market. If a bond was offered with 1% interest, and next year interest rates go up and a new identical bond is offered for 2% interest, when you sell your old bond you will take a loss, because the market won't want to pay full price for it anymore.

Whether you should sell lower-interest rate bonds depends on how you feel about the factors above - do you want junk bonds that have stock-like levels of returns but high risks of default, maturing in 30 years? Or do you want AAA+ Bonds that have essentially 0% returns maturing in 30 days?

If you are paying interest on debt, it is quite likely that you could achieve a net income benefit by selling the bonds, and paying off debt [assuming your debt has a higher interest rate than your low-rate bonds]. Paying off debt is sometimes referred to as a 'zero risk return', because essentially there is no real risk that your lender would otherwise go bankrupt. That is, you will owe your bank the car loan until you pay it, and paying it is the only thing you can do to reduce it.

However, some schools of thought suggest that maintaining savings + liquid investments makes sense even if you have some debt, because cash + liquid investments can cover you in some emergencies that credit cards can't help you with. ie: if you lose your job, perhaps your credit could be pulled and you would have nothing except for your liquid savings to tide you over. How much you should save in this way is a matter of opinion, but often repeated numbers are either 3 months or 6 months worth [which is sometimes taken as x months of expenses, and sometimes as x months of after-tax income]. You should look into this issue further; there are many questions on this site that discuss it, I'm sure.

  • is there a way to find out the differences in the bonds themselves, I thought they were all government/treasury bonds not stocks – Jacob Evans Dec 5 '16 at 14:56
  • @JacobEvans Many different organizations offer bonds - national governments, local governments, public companies, private companies, etc.. The bonds themselves will tell you who they are offered by, and they will also provide other details such as maturity date, interest rate, and so on. You should be sure to read the details of everything you invest in before you do so; in your case the main risk would be buying a high-risk bond thinking it was secured by the government, but it was actually offered by a failing corporation. Where there is high return, there is risk, you can be sure of that. – Grade 'Eh' Bacon Dec 5 '16 at 14:59
  • All my bonds are gifts from parents/grandparents, just trying to determine risk vs reward, It looks like I'm going to keep everything for a solid rainy-day fund. – Jacob Evans Dec 5 '16 at 15:03
  • @JacobEvans I appreciate that you may not have made the decision to purchase them previously, but you should still read up on all of them before you decide whether to keep/sell them. And while an emergency fund is valuable, it could be unwise to receive 1% interest from a bond while at the same time you are paying, say, 5% interest on a car payment. Make sure you do some more research before you make the decision either way. – Grade 'Eh' Bacon Dec 5 '16 at 15:06
  • I understood "EE bonds" to refer to US Treasury Series EE Savings Bonds. If that's the case then they are backed by the full faith and credit of the US government and should have the lowest possible risk rating. Thus risk should not be the issue here. Also, that page says Series EE bonds can be redeemed without penalty after 5 years from issuance, so liquidity is not the issue here either. Would you like to revise that part of your answer? – Nate Eldredge Dec 5 '16 at 15:22

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