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When Should Currency Be Graded?

When Should Currency Be Graded?

The short answer is that currency should be graded when the added value of the third party authentication is greater than the cost and time of grading.  Read below for the long answer.

Any currency collector or dealer can relate to the following situation.  You walk into a coin shop or coin show and check out a dealer’s inventory.  While perusing you happen to see a small stack of currency that you would normally be interested in buying.  You ask the dealer to look at it and he says yes, but he then tells you “those aren’t priced yet, I want go get them graded first.”  You flip through the stack and see common nationals and type notes ranging from VG to Very Fine condition.  All you can do is thank the dealer for his time and leave a card in vain knowing that you will never hear from him again.  Sometimes the dealer says he wants to get something graded just so he doesn’t have to price it to you.  Other times he genuinely thinks something should get graded.  Here is our take on when to grade currency.

When To Grade National Bank Notes:

In our opinion there are only two reasons to grade national currency.  If you think you have a national bank note that will grade as choice uncirculated 64 or higher, then it definitely makes sense to get it graded.  There are certain scenarios where a bank note can be rare enough that it doesn’t matter if the technical grade is 55 or 65.  However, if we are talking about something that would traditionally be valued at less than $2,000 then it makes sense to get it graded if you can get into a holder that is 64 or higher.

We also recommend getting national bank notes graded if you think you are going to be selling to a non-collector who might not be sophisticated enough to understand that there really aren’t many counterfeit national bank notes.  For example, someone living in Dublin, GA might be a life coin collector who has never seen a national bank note before.  He might be willing to pay a full retail price for a national from Dublin as long as he knows it is authentic.  In this situation having a note graded would add value because it shows the end user that what he or she is buying is in fact authentic.

We feel like 98% of the time there is no extra value in grading a national.  The people who collect national bank notes do so because they are rare and pieces of local history.  Technical grades aren’t always extremely important.

When To Grade Large Size Type Notes:

We all know that there is a very advanced and sophisticated market for high grade type notes.  The term “type note” is a collector designation for any piece of United States currency printed between 1861 and 1923.  Some type notes like 1923 $1 silver certificates can sell for as little as $5.  Another type note would be the 1891 $1,000 silver certificate that just sold for 2.6 million.  So that is your range in terms of value.  There are lots more situations in which a type note is worth grading compared to a national bank note.

DEFINITELY get a type note graded if you think it has a chance at a super high grade like 66 or higher.  For example, 1899 $1 silver certificates (nicknamed black eagles) usually sell for around $750 if they are graded as 66.  One 1899 $1 bill has been graded as a 69.  It sold for $30,000.  There are exponential returns for super high grades.

We probably wouldn’t advise getting something worth $500 or less graded if the grade is already very obvious.  Let’s look at the same 1899 $1 silver certificate.  A note like that with one fold is probably going to grade as AU 55.  Even new collectors understand that one fold means AU.  Having a third party confirm that grade really doesn’t help you any.  A raw AU black eagle is going to sell for $250.  A graded AU black eagle probably sells for $285.  It doesn’t really make sense to spend the time and money to get it graded when the grade is already obvious.

We also probably wouldn’t advise getting something graded if it looks CU but is technically AU.  Most dealers wouldn’t write that in an open forum, but it is true.  Some notes are beautiful and worth more than their technical grade.  Why pay money to put something in a 58 holder that looks like it is a 67?  The reality is that if something looks like a 67, but it is technically AU, you can probably find a dealer who has the skill to conserve the note so that it does become a true 67.  That same dealer is likely going to pay you 64-65 money instead of 58 money.

Definitely DON’T grade something if it is has great eye appeal but something technically is wrong with it.  This is one of the biggest mistakes we see new collectors or coin dealers make.  Even a tiny amount of rust, ink, or a foreign substance can result in a net or apparent grade.  A net or apparent grade generally lowers the value of the grade by about 25-50%.  We are not saying that rust or ink will be overlooked by a potential buyer if the note is ungraded, but at least there is not text explicitly mentioning the condition issue.

On the other hand, if something is especially low grade, even with condition issues, it might make sense to get graded.  This is where the encapsulation adds protection from getting worse.  If any readers have ever set up at a show then we all know what most buyer’s MO is.  They want to look at a note and point at all the issues in order to get a lower price.  If I have an 1896 $5 educational in VG condition with a tear I could price it at $400 and ten different buyers would look at it, point out the tear, and pass.  If that same note is graded as a VG 10 Apparent with a tear, then you might have a line of people looking to spend $500 for it.  For some reason people are just more willing to overlook condition issues on rare but low grade notes if they are already graded by a third party.  It also takes out the haggling about the condition.  The grade says “Yes, there is a condition issue, here it is, do you want the note or not?”  That might seem like forceful language, but that is exactly what is happening.  The decision for the buyer becomes more about eye appeal and price rather than worrying about a condition issue.

Grading Services Have Significantly Advanced the Hobby

The above comments are just our opinion on when to grade currency.  Whether you want to grade everything or nothing, that is your choice.  However, there is no doubt that grading services have helped advance the position of currency as an investment grade collectible.  Third party authentication and grading has helped esoteric areas become more popular.  Grading has also helped protect new collectors from buying processed or repaired bank notes.  Grading isn’t always the right option in our opinion, but it is a wonderful service when the situation warrants it.