How to Redeem Savings Bonds — and When to Do It

This information is provided for informational purposes only, and is not intended to be construed as tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors before making financial decisions. 

Eventually, all bonds will be cashed out. If that time has come, you’re probably wondering how to redeem savings bonds.

Although the process is simple, there are a few rules and details to be aware of. We’ll run through:

• The mechanics of savings bonds 

• How to cash them out

• Important details like taxes and the best time to redeem

What are savings bonds?

Savings bonds are a financial product that allows you to lend money to the U.S. government in exchange for interest. The term “bond” can also refer to lending money to other entities (like companies or municipalities). However, savings bonds are a specific type offered by the U.S. Treasury. 

Interest accrues every month and is added to the total value of your bond twice a year, which allows you to take advantage of compounding interest (meaning your interest earns interest).

Savings bonds have 30-year terms. You can cash out earlier (as long as 12 months have passed), but you will forfeit three months of interest if you do so in the first five years.

Types of savings bonds

The types of savings bonds available today are:

• Series I bonds are inflation-protected bonds that offer a fixed rate of interest plus a variable inflation rate that changes every six months. There is a maximum purchase of $15,000 annually.

• Series EE bonds offer a fixed interest rate for the first 20 years and guarantee that the initial value will double in 20 years. There is a maximum purchase of $10,000 annually.

However, other savings bonds were for sale in the past, and they are now discontinued, such as Series E and  Series HH bonds. 

From November 1, 2022, to April 30, 2023, the Series EE savings bonds offer a rate of 2.10%, while Series I savings bonds offer a rate of 6.89%. Also, in both cases, the minimum purchase is $25.

Previously, both types could be either electronic or paper savings bonds. Now, EE bonds are available only as electronic savings bonds, while Series I bonds are available as paper bonds only through an IRS tax refund.

If you suspect you or a deceased loved one may have bonds and want to check, you can use the Treasury Hunt to track them down.

How to redeem savings bonds

You will need to hold a bond for at least a year before you can redeem it — i.e., cash it. Let’s look at the process for how to redeem savings bonds.

In the case of electronic bonds, there are just three simple steps:

1. Visit your account on TreasuryDirect.

2. Navigate to ManageDirect.

3. Click the option to cash your securities.

You need to cash paper bonds in at a bank. Only certain financial institutions can perform this task, so you’ll need to check with them beforehand. You may need to provide a form of identification, like your driver’s license.

Or, you can cash in with the Treasury by sending them an FS Form 1522 and a certified signature (if you’re cashing in more than $1,000) through the mail.

You can use a savings bond calculator to determine how much interest you’d earn and the cash value you’d get if you cashed out your bond today. The Treasury calculator is useful for paper bonds. In the case of electronic bonds, you can simply log in to your TreasuryDirect.gov account to see the value of your bond.

What about discontinued bonds?

In the case of bonds that have now been discontinued, you can still redeem your bonds.

For Series E bonds, the process works the same as outlined above. As for HH bonds, you can’t cash them in at a bank, and instead, you’ll need to redeem them by mail with the U.S. Treasury.

Do you need to redeem the full amount?

You can redeem your bond for its full value or just a portion. But if you cash out a partial amount, you’ll only get the interest associated with that bond portion.

Since the minimum amount for a bond is $25, you must cash out at least this amount. Also, if you don’t cash out the full amount, you must leave at least $25. 

The exception is paper bonds, which you must cash out in their full amount.

Do you have to pay taxes on savings bonds?

Before spending all that extra money you get from redeeming your savings bonds, don’t forget about taxes. You have to pay federal income tax on the income you earn from your bonds (aka the interest earned), although you will be exempt from state and local income taxes.

The January after you cash in your bonds, you can log in to your TreasuryDirect account and find the 1099-INT, which you should file with your tax return that year. If cashing in paper bonds, the bank or the Treasury will mail the form to you instead.

On the bright side, you may be able to avoid taxes if you meet certain criteria — for instance, if you use the bond for higher education expenses and meet other requirements.

When is the best time to redeem a savings bond?

Now you know how to redeem savings bonds — but just because you can, it doesn’t mean you should. Let’s look at when you might want to cash in your bond.

If your savings bond has reached its maturity date, there’s no reason to keep holding it since you won’t earn interest from it anymore. Instead, it’s time to move it somewhere you can put it to good use, like a high-yield savings account or certificate of deposit.

Redeeming savings bonds after fewer than five years means you’ll miss out on interest, so you should try to avoid this path. 

However, there’s one exception. If you’re facing an emergency and trying to figure out how to cover the cost, redeeming your sayings bonds could be the wisest choice. Although you’ll lose some of your interest, this loss may pale compared to the consequences of taking on high-interest credit card debt to cover your expenses. 

But what if the first five years have passed, yet your bond still hasn’t reached full maturity? Your decision to cash out will depend mostly on whether you can make more by keeping your current bond or switching to a different financial product.

For example, if your Series I bond rate has dropped to 1% and you can make 3% in a high-yield savings account, you may want to move the money.

Your financial advisor can help determine if your money would be better served elsewhere.

Is it time for you to cash savings bonds?

In most cases, redeeming savings bonds is simple enough. You can log in to your TreasuryDirect account or head to your local bank. However, don’t forget to pay attention to the rules and file your taxes accordingly.

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