Should we cash in our bonds and pay the tax?

Several years ago, my wife and I inherited several “I bonds” and they are now past their maturity date. Would it be a good idea to cash in these bonds today and pay the tax (we are in a 25% tax bracket)? We have no immediate use for the money right now, so we would probably put it in our savings account. Right now, the savings account pays very little, so is this a lose-lose situation? By that I mean, will we pay a tax on the bond, earn interest, and get very little interest on our savings in the future?

Bonds / Fixed Income, Taxes
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February 2017

Mayo, Kerry

Clifton Park, NY
100% of people found this answer helpful

You will pay tax on the interest the bond earned, but an option is to invest the proceeds in a mutual fund or exchange traded fund that will earn you more return on the proceeds than your savings account. You can even buy a fund that invests in treasuries. It should get you more of a return than your savings account. It will throw off taxable interest, but that means it made money. Don't let the tax tail wag the dog. If you pay tax, it means in most cases you've made money and you have more money than you did.

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