January 11, 2012
– Comments (5)
I had purchased $50 savings bonds for my kids' education on a monthly basis for about 10 years. Upon cashing in some of them, I was happy to discover that $500 in bonds were now worth $718.
Interest. No one would buy them if they did not pay interest.
There's an inverse relationship between interest rates and bond prices. You bought those bonds when interest rates were higher. Because of that, your bonds are more attractive than ones offered today. So people will bid up your bonds until your bonds are equivalent (in yield) to currently available ones.
If you want to read further look up information on the "time value of money" and "present value" calculations.You can find calculators online that figure all of that information out for you.
As a side note, the longer the time until the bonds mature the more bond prices are sensitive to changes in interest rates. I would guess you bought long dated bonds.
They continued earning interest between initial maturity and final maturity.
May I ask-
Why did you buy the bonds if you did'nt understand that they would appreciate in value...?
somrh, that is not an accurate description of savings bonds. Unlike regular bonds there is no secondary market. The price they are redeemed at is based solely on interest earned.