I was cleaning out an old drawer and thought this might be be a fun exercise for those who want to bring some math into their classroom and also compare the returns on stocks and bonds:

I received this savings bond in April, 1980 for winning an essay contest put on by the local Elks Club. The topic: Patriotism in America. This was the time of the Iranian Hostage crisis and I remember writing about how local communities were supporting the hostages and their families in so many ways. This discovery had me wondering about  a few things:

• Is this bond still earning interest 37 years (has it really been that long?) later? If so, what is the interest rate?
• If I wanted to cash this in today, how much would it be worth?
• What if the Elks had given me the equivalent of $25 (what a $50 bond would have cost the Elks) in an index fund in April of 1980? What would be it be worth today?
• With the gift of hindsight, what should I have done when I received the bond?

Let’s take these questions one at a time:

Is the bond still earning interest? 

From TreasuryDirect.com comes the bad news:

Savings Bonds No Longer Earning Interest:

• E bonds through November 1965 that are more than 40 years old,
• E bonds with December 1965 or later issue dates that are more than 30 years old,
• H bonds that are more than 30 years old,
• Freedom Shares (also known as Savings Notes) and
• HH bonds that are more than 20 years old.

Since I have an E bond issued after December 1965…it stopped earning interest after 30 years.

___________

So, how much is is worth today? $165.74

Treasury Direct has a useful tool that delivered these results:

Of course, now I want to know, what my rate of return was over the 30 years that it was earning interest before the April 2010 Final Maturity. This IRR calculator came up with an annualized rate of return of 6.5% (which seems pretty good when the 30 year Treasury Bond has spent the last decade between 2.5% and 5.0%):

_____________

Now, on to the question of index funds. What if the Elks had delivered that $25 in the form of shares in an S&P500 index fund (the index fund was invented 40 years ago so I presumably would have had that choice)?

For this, I go to Yahoo Finance and their historical pricing function.  I find that on April 1st, 1980 the closing price for the S&P500 index was $102.18. So, for the $25 value of the bond at issue, I would have gotten about 1/4 of one share of the S&P500 index. Fast forward to March 2017 and that same S&P500 index is now quoted at…..$2,383. Wowsa!

Divide that by 4 and I come away with about $600 in value. Point here is that the $25 investment would now be worth $600 not by being a great investor but by just investing in an index fund and letting the miracles of compounding returns work for you. What’s the IRR (annualized rate of return) over that 37 year time period? 8.96%. 

Morale of the story: My 13 year old self should have cashed the bond immediately and put it into the stock market:) And I better get the bond redeemed now since I’m not earning any interest. Will I part with the memories?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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