Investing in Silver Coins: How to Get Started

While silver is less valuable by the ounce than gold, silver prices are also historically more volatile. Which means bigger price swings, and for investors who can take the risk when silver prices are relatively low, even greater potential gains. 

Silver has value as a precious metal because of its natural scarcity and globally recognized value as currency. Older U.S. coins, including dollars, half-dollars, quarters and dimes contain up to 90% pure silver. 

Silver coins are easily bought and sold nearly anywhere in the world, and the metal can nearly always sell quickly for very close to its going spot price. 

Additionally, silver is in high demand in a variety of industrial uses, thanks largely to its excellent properties as a conductor of electricity. This steady industrial demand tends to give silver prices some support when gold and other commodities are falling. 

Silver is also an increasingly high-demand asset for IRAs, as more investors become aware of the advantages of self-directed retirement accounts. 

Silver ‘Spot Price,’ Premiums and Discounts

Spot price, premiums and discounts are important concepts to understand before investing in any kind of precious metal. 

The ‘spot price’ is the current price per ounce of silver available on the market today. It fluctuates every day, based on market sentiment and supply and demand. 

But few genuine silver bullion coins sell at spot price. Indeed, bullion coins in good condition usually command a price well above spot. 

When a buyer pays more than the spot price for a given amount of metal, we say he is paying a premium, or “buying at a premium.”

If the buyer pays below the spot price, we say he is “buying at a discount.”

Bullion vs. Proof and Collector Silver Coins

The concept of bullion is critical to understand before you begin investing in silver coins. Bullion is minted solely for the value of the metal. Every bullion silver coin of a given type is carefully manufactured with exactly the same amount of silver. 

Bullion therefore holds its value after a few scuffs or scratches better than ordinary proof coins.

In contrast, proof coins derive more of their value from their desirability to collectors and hobbyists. Proof coins may sell for much more than their silver content. But when the price of silver goes up, the proof coins with less silver content will typically get left behind.

Long-term investors should prefer owning bullion, paying a lower premium per gram of silver over spot price, compared to owning proof coins. 

Silver Coins Vs. Rounds 

Silver rounds are bullion products, similar to coins, except that rounds are manufactured at private mints, while coins may be minted by public or private mints. Rounds are manufactured simply, and valued almost entirely for their metal content.

Coins are often considered legal tender in the countries where they are manufactured by national mints. They have a legal tender face value amount stamped right on the face. Rounds are not legal tender and typically don’t have a currency amount stamped – just a weight, if that. 

Rounds will typically sell at a lower premium than coins, per ounce of silver. So you can get more silver for dollar invested – especially if you are willing to buy in bulk. 

Many people have made money in precious metals by being willing to buy rounds in bulk and sell rounds individually, to people willing to pay a slightly higher premium. 

Note: Don’t use the face amount stamped on the coin as a guide to its value. You should gauge value by the silver content, or the content of other precious metals. At press time, 25-cent “America the Beautiful” coin sells for close to $20!

Related Article: Investing in Silver Bars - A Beginner's Guide

Coins vs. Bars

Silver bars can be bullion. That is, packaged in accurate, standardized weights, and bought and sold almost entirely on the basis of the value of the metal in the bar itself. There are also many non-bullion silver bars on the market as well – often traded for their collection value as much as for their metal content. 

Bars are often sold at much lower premiums than coins at an equivalent weight. But coins have more practical value as currency. They are more easily traded during a crisis, and they are more easily stored. 

Mint Quality and Prestige

Some mints are more prestigious than others. Coins and other products from these mints routinely sell at a substantial premium to spot price. Usually, the smaller the coin or bar, the greater the premium. Small coins from established high-quality mints tend to sell at the highest premiums.

This is due to economies of scale: The costs of refining, minting, packaging, vaulting, transportation and insurance have to be accounted for in the price – along with the manufacturer’s and dealer’s profit margin. Most of these fixed costs are the are the same for small coins as they are for large ones, pushing the premium over spot price up. 

Coins from well-known, respected mints are in higher demand, pushing prices up. They are also easier to unload quickly, and can be readily sold anywhere in the world. 

Very small coins from prestigious mints can command premiums as high as 150%.

At the other end of the scale, ordinary, generic rounds with little value added in engraving or with significant scratches and scuffs, made in lesser-known refineries generally sell at a very low premium and occasionally at a discount to spot price. 

Public & Private Mints

Here are some of the most reputable public and private mints that create silver coins for investors:

• U.S. Mint
• Scottsdale Mint
• Royal Canadian Mint
• Rand Refinery (South Africa)
• Perth Mint
• Austrian Mint
• APMEX

Related: Safe-Haven Assets - How to Invest For Safety in Times of Crisis 

Silver Coins: New vs. Used

As with most things, used items sell for less than brand new items. Newly-minted coins, bought directly from an authorized dealer, will sell for higher premiums than pre-owned coins. 

Furthermore, gold and silver are not very hard metals. Unless carefully stored, they are prone to some wear and tear, in the form of scratching and scuffing. These can lower the value. 

This is one reason many precious metal investing experts recommend bullion over proof and collectibles: Bullion’s value is much more closely tied to the weight and purity of the metal in the coin or bar itself. So a few scratches might severely impact the value of a collectible or commemorative coin, but have next to no effect on a pre-owned bullion coin or bar. 

If a used coin has some scuffing and scratch damage, dealers may mark it down as a “B-grade” coin. 

Buying silver coins pre-owned can mean lower discounts – especially if you can place a significant-sized order. 

The best way to avoid overpaying for silver coins is by doing your buying direct from a reputable dealer, and vaulting it with them, if you have a need for vaulting services. Because the dealer knows the chain of custody has been intact since the silver was manufactured. It hasn’t left their possession since it left the mint!

If you stick to this practice, you can be confident that your coins will remain in like-new condition, and you can resell your coins to your dealer at any time for a very small spread. 

If the chain of custody is broken, on the other hand, the dealer will have to make allowances for the possibility that the silver coin or bar has been shaved or otherwise tampered with. 

There are also higher transportation/transfer and transaction cost to contend with. In most instances, the most cost-efficient way to sell silver not stored at home is to transact directly with your custodian/dealer. 

Related: Getting Started Investing in Gold Coins and Rounds

Silver Coin Sizes

Silver coin and round products are available in a range of sizes from tiny 1/20^th ounce Canadian Maple Leafs up to 1 ounce. The smaller the coin, the bigger the premium you can expect to pay relative to spot price. 

Common or Popular Silver Coins

The most recognized silver coins include: 

• American Eagles (U.S.)
• Silver Maple Leafs (Canada)
• Silver Kangaroos (Australia)
• Silver Koalas (Australia)
• Silver Britannias (United Kingdom)
• Queen’s Beasts (United Kingdom)
• Silver Pandas (China)
• Krugerrand (South Africa)
• Austrian Philharmonics
• Mexican Libertads
• Irish Shamrocks
• Silver Lions (Netherlands)

Circulated Silver Coins

You can also buy older U.S. coins that have significant silver content. Older dimes, nickels and quarters contained between 40% and 90% silver. 

These typically sell for silver scrap value – which makes them attractive to novice investors and those with smaller portfolios. 

Note: You can’t hold these in an IRA or other tax-advantaged retirement account. 

Tax Considerations

Bullion coins also come with certain tax advantages compared to collectibles. In the United States, sales of bullion coins considered legal tender are often tax-advantaged or tax exempt.  

Numismatics, or collector coins, on the other hand, do not have any tax advantages compared to other collectibles. Gains on collector coins are taxed at the seller’s marginal tax bracket, up to a maximum of 28%. 

Assets Held Outside of Retirement Accounts 

Gains from physical gold or silver, or gold and silver Exchange Traded Funds (ETFs) are taxed as collectibles, just like art and antiques. 

Precious metals bullion coins and bars are also taxed as collectibles by the IRS. 

If you sell within a year, any gains are taxed as ordinary income. However, if an investor’s precious metals holdings are more than a year old, gains could be taxable up to 28 percent. 

Additionally, a 3.8 percent net investment income tax may also apply to higher income earners.

Assets held within retirement accounts

Gains and losses on gold, silver, and other precious metals held within IRAs, 401(k)s and other tax-advantaged accounts are not taxable events. Instead, any distributions are taxed at ordinary income rates, subject to the early withdrawal penalties and hardship withdrawal exemptions that otherwise apply to those accounts. 

More details on the taxation of precious metals, including silver coins, are available here. 

To qualify for IRAs, silver coins must meet all of the following criteria: 

• Silver coins must be of at least 99.9% purity;
• Must be produced by a refiner, assayer or manufacturer that is accredited/certified by NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM, ISO 9000, or national government mint and meeting minimum fineness requirements;
• Proof coins must be encapsulated in complete, original mint packaging, in excellent condition, and include the certificate of authenticity;
• Small bullion bars (other than 400-ounce gold, 100-ounce gold, 1000-ounce silver; 50-ounce platinum and 100-ounce palladium bars) must be manufactured to exact weight specifications;
• Non-proof (bullion) coins must be in brilliant uncirculated condition and free from damage;

Silver Coins Authorized for U.S. IRAs and Other Retirement Accounts

• U.S. Silver Eagles
• Canadian Maple Leafs
• Canadian Silver Arctic Fox coins
• Sunshine Mint silver rounds
• Silver Pandas
• Mexican Libertads, 
• Austrian Philharmonics
• Australian Silver Koalas
• Australian Silver Kookaburas
• UK Silver Britannias (minted in 2013 or later)
• Austrian Vienna Philharmonics

Custodial Requirements for Silver Coins in IRAs 

You cannot hold your IRA coins personally. You can’t keep them in a safe in the closet, or even in a safety deposit box in your hometown bank. Instead, they must be held by an authorized custodian on your IRA’s behalf. 

How to Protect Yourself from Silver Coin Scams

The best way to protect yourself from silver coin-related scams is to confine your transactions to reputable silver coin dealers. 

In most cases, silver doesn’t sell below spot price. Ads or promotions that appear "too good to be true" should cause you to think twice before buying.