Just when is it that two nickels aren’t worth a dime? Well, reach in your pocket. Any two nickels you find in your pocket aren’t really worth a dime, they are actually worth more! How, you ask? Since its introduction in 1938, the Jefferson Nickel has been made of a alloy of two different metals, copper and nickel (we’ll dicuss a 3 year exception later). This combination, known as cupronickel (CuNi) is 75% copper and 25% nickel. These base metals have increased in value over time to reach a point where the value of these metals used to make a nickel now exceeds five cents. A nickel weighs 5 grams. 75% of the weight is in copper which is currently valued at approximately $4.24 per pound. 25% of the weight is in nickel which is currently valued at approximately $11.95 per pound. There are roughly .0022046 pounds per gram. So the math works out as such:
Copper portion: 4.24 * (5 * .0022046 * .75) = .03505
Nickel portion: 11.95 * (5 * .0022046 * .25) = .03293
Combined: .03505 + .03293 = .06798
A Nickel is actually worth 6.8 cents, not the 5 cents we’ve been led to believe! Is there an arbitrage opportunity? Not really, at least not currently. In 2007, Congress passed a law banning the melting of nickels and pennies (http://www.usmint.gov/pressroom/index.cfm?flash=yes&action=press_release&ID=771). Additionally, as long as you can go to your local bank and request nickels for face value its very doubtful you would receive more than 5 cents for them in the public marketplace.
Those times may be changing though. Last year, Congress passed the Coin Modernization, Oversight and Continuity Act of 2010. This act empowers the US Mint to research coin compositions and recommend changes to the metallic content of US coinage. A new act or law would need to be passed to actually change the composition though.
This would not be the first time a change was made in coin composition. In 1965, silver content was removed from dimes and quarters and reduced in half dollars. There is currently no melting ban on pre-1965 silver coins. Once the composition of a nickel changes, you can bet older CuNi nickels will be lifted from circulation by enterprising individuals. The advantage of hoarding nickels now is that no sorting of nickels is required. Nearly all nickels in circulation today are the same 75% copper / 25% nickel composition.
There is of course always an exception, but in this case its a good one. For about 3 years from 1942 to 1945 the composition of the nickel was different. These are referred to as War Nickels. During WWII nickel was needed for the war effort (armor plating), so the US Mint changed the composition of the nickel to an alloy of 35% silver, 56% copper and 9% manganese. These nickels still weighed 5 grams, but are worth over $2.40 today, primarily because of their silver content. In a box of 2000 nickels ($100 face value) you could probably expect to find 1 or 2 silver nickels on average. Hardly worth the time to sort through them!
As soon as that law is no longer in place, you could expect a market to be created for these coins. That won’t happen though until the composition of the nickel and penny changes. And even when it does, it may be some time before the melting ban is lifted. If you are willing to wait though and store these coins longer term, the payoff could be larger than expected. Remember that in 1964 the silver content of dimes and quarters were just approaching the face value of the coins and today a single pre-1965 quarter is worth over $7.75 and a dime is worth over $3.10. These prices are easily achieved on marketplaces like eBay. Some day nickels that are selling for face value today could fetch a great deal more. And if this prediction is wrong, you will not have lost any real money as a nickel will still be worth five cents. You will have only lost the opportunity cost foregone by storing the coins.
Hoarding nickels could be another opportunity for you to have a hedge against your personal inflation rate and to protect your buying power!