Can you make a mint collecting old banknotes?

Published by Chris Menon on 10 May 2019.
Last updated on 10 May 2019

Can you make a mint collecting old banknotes?

If you have the passion – and patience – to collect rare examples of banknotes, then you could make much more than their face value – but read on to see if it’s a collection you can bank on

We are constantly hearing about the death of cash, but some investors are turning old banknotes into a future asset.

Although anyone finding an old Bank of England banknote hidden away in an envelope or in the attic has the comfort of knowing they can redeem it at face value (see box below), it could be worth a lot more to a collector.

Take for instance, a Bank of England £20 note from 1970, with the signature of the Chief Cashier of the Bank of England, John Standish Fforde. A collector would likely pay much more than the face value of £20 if it is in mint condition – up to £400, according to Pamela West, founder of British Notes, a specialist dealer in British banknotes.

While older notes are generally worth more, as they’re less likely to have survived, age isn’t the only factor that determines a banknote’s value (see ‘Top Five’ box below).

Top five banknotes

The five most valuable banknotes in terms of sale price achieved are:

1. USA Grand Watermelon $1,000 treasury note, 1890, at £2.6 million

2. USA Red Seal $1,000 treasury note, 1891, at £2 million

3. USA $500 gold certificate, 1882, at £1.12 million

4. Australian £1,000 note, 1924, at £963,000

5. Australian first modern 10-shilling banknote, 1913, at £606,000

Source: Bonham Auctions

James Morton, joint founder of auctioneer Morton & Eden, explains that the main factors are: “Historical interest, rarity and – most importantly – condition, which should ideally be as good as new.”

When establishing condition, there are nine standard international grades for banknotes, ranging from ‘uncirculated’ down to ‘poor’. The higher the grade of the note, the more valuable it is likely to be. There are also third-party grading services that will, for a fee, identify and grade notes, although they use a different grading system based on an ascending scale of 1 to 70.

Banknote collectors also need to look out for low serial numbers (such as AA01) or interesting serial numbers, such as ‘123456’, as well as unusual errors such as an extra flap of paper on a banknote. All these factors can dramatically increase rarity and value, provided their condition is good.

But, given their illiquidity, banknotes shouldn’t be viewed as a regular investment.

John Mussell, group managing editor of Coin News, explains: “Banknotes can make money but at the end of the day there are no quick bucks to be made. You can’t buy a note today and in three months’ time sell it and make a killing. You can do it if you find errors in a note out of a cashpoint – but as a rule, no.

“If, however, you start a good-quality collection now and slowly build it up, you may find that in 10 or 20 years’ time that collection will be worth more than you paid for it. But no one can guarantee it,” he adds.

“You can’t buy a note and sell it and make a killing in three months’ time”

One person who recently made a significant sum selling his collection of banknotes is US collector Joel R. Anderson. On 28 February this year, at an auction organised by Stack’s Bowers Galleries in the US, he sold Part IV of his collection for nearly $8 million (around £6.6 million). In total, from the sale of his entire collection, he realised $34,126,980 (£25,880,712).

Joel began his collection as a teenager in 1963 and, according to the auction house, it was the product “of many years of careful study, connoisseurship and patience”. Indeed, over the years this multi-millionaire set many price records at auction including the first million dollar note, the $1,000 Grand Watermelon Note, which last October was sold for twice that amount (so-called because of the green watermelon-like zeros printed on the back).

It would be unrealistic for any ordinary banknote collector to aim to emulate his success, but there is money to be made if you can be patient (see case study, right). Yet, to do so it’s vital to know the value of what you are buying and not to overpay.

Simon Narbeth, managing director of banknote dealer Colin Narbeth & Son, points out: “The idea that condition is all important to value, in the sense that you should only buy the top graded notes by grading companies, is not for me.

“We are seeing common notes being sold at very high prices due to being graded. When, in fact, the note is common and more will arrive to the market over time. As general advice, go for pleasing condition; you do not need to buy the best condition to have a good note.”

How to cash in old banknotes

If you find an old banknote that has been withdrawn from circulation, what should you do? The good news is that if it was issued by the Bank of England it can be redeemed for its face value. You can either send it in by post or exchange it at the Bank of England in Threadneedle Street, London EC2R 8AH. For more information, visit Bankofengland.co.uk/banknotes/exchanging-old-banknotes; email exchanges@bankofengland.co.uk; or call 0203 461 5994. Scottish note issuing banks will also accept old Scottish banknotes.

To exchange old foreign currency, you should contact the banknote issuer in the relevant country.

To establish market value, the International Banknote Society (IBNS) recommends buyers compare prices between dealers and look at prices achieved at auctions. Specialist catalogues can also be used, although their values are not always reliable so should only be used as a rough guide. The basic catalogue for world notes is Krause World Paper Money, but many other catalogues are used for specific countries.

It is also advisable to acquire market knowledge by joining clubs such as the IBNS and meeting other collectors.

As to what banknotes to collect? Well, you’re spoilt for choice. There are many banknote types that can be collected, from inflation money (Weimar Republic, Zimbabwe and Venezuela, for example)to specific countries, banks or themes (ships, music and so on).

Sarah Fergusson, head of client services at McTears auctioneers in Glasgow, advises collectors to “speak to all the experts they can but ultimately buy what they like, things they do not see that much and never with deliberate investment in mind.”

It is also best to buy from reputable dealers to minimise the risk of buying forgeries. Although some people do actually collect forged banknotes.

Whatever you do collect, you should keep them safely – “Ideally in acid-free paper envelopes or custom-made sleeves made from an inert material such as mylar,” advises James Morton.

If you’re fortunate, you may end up with a valuable collection. But it would be a mistake to bank on it.

“I’d be disappointed if my collection didn’t raise £50k to £60k”

Simon Feist (pictured above), 48, a research technician from the south of England, has been collecting banknotes since the age of 19, when he bought his first note, an Operation Bernhard Bank of England white £5 forgery, at a car boot sale for £15. He now has around 200 examples in a collection of English banknotes.

He says: “I have examples of notes dating from the 19th century, though the majority are from 1928 onwards when the Bank of England took responsibility for issuing banknotes.”

Simon admits his main aim now is “to create a good-quality, well-rounded collection, not primarily to make money”. That said, he reckons his collection is quite valuable.

“Based on current catalogue values and recent prices achieved in salerooms, I would be disappointed if my collection didn’t achieve in the region of £50,000 to £60,000 at auction.”

He adds: “I have previously researched banknote values at some depth and definitely found a clear trend in price increases over time. This doesn’t necessarily help when adding to my collection, but it is nice to know I haven’t been throwing my money away. Generally speaking, rarer items have increased in value much more than common examples but the upward trend is still evident.”

CHRIS MENON is a freelance journalist and former editor of Every Investor who specialises in personal finance and investing

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