Know when to cash in savings bonds

Q. Over the years, my wife and I purchased many US Savings Bonds. They probably have a value of $25,000 or more. We are retired and have not had to cash in any of the bonds. Now, I would like to cash some out to supplement our retirement income. What is the best strategy for doing this? Are there information sheets on bonds, showing future interest earnings?

- Name withheld,

Los Angeles

A. Redeem non-interest earning bonds first, and low-interest bonds second, while holding on to your highest interest-earning bonds, says Daniel J. Pederson, author of "Savings Bonds" ($19.95, 800-927-1901).

Bondholders own some $5.3 billion worth of savings bonds no longer earning interest, says Mr. Pederson. They include all Series E bonds issued before December 1958 or between December 1, 1965, and November 30, 1968.

Many banks carry bond tables of total bond values including interest earnings based on current interest rates.

But what you need, says Pederson, is to know what future interest rates will be. Interest rates on bonds change periodically based on the nature of the savings bond and the government's interest-rate formula. If you know what future earning will be, you can sell off your lowest yielding bonds, while keeping the higher yield bonds.

His book has a table ranking bonds based on their future interest rates.

Q. I am a 40-year old male and I have $150 a month I'd like to invest for my children's future, ages 10 and 2. I need something that will grow with them.

- J.A.,

Tracy, Calif.

A. Consider investing your $150 in the T. Rowe Price Value Fund (800-225-5132), a large-cap fund, says Lewis Altfest, who heads up L.J. Altfest & Co. in New York.

The fund has returned 25 percent since its inception in 1994.

You could split the money, setting up accounts for each child under a "Gift to Minor's Act" account, says a T. Rowe Price spokesperson. The account would list you as custodian, but carry the child's Social Security number.

Also consider US savings bonds for the children. If used for educational purposes, the interest may be exempt from federal taxes, depending on your income.

The bonds must be registered in the name of one or both of the parents. For information, write to "Savings Bonds," Parkersburg, WV, 26106-1328.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com