How to cash in savings bonds

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In a Nutshell

Cashing in a savings bond (Series EE or Series I) is relatively easy. But you can’t cash one in until you’ve had it for at least one year. And if you cash it in before it’s 5 years old, there’s a penalty. Depending on whether you have a paper or electronic savings bond, you can cash it in at most financial institutions, online or by mail, as long as you’re the owner or co-owner. Others who aren’t named on the bond may need to take additional steps.
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If you own a Series EE or Series I savings bond, you have a few different ways to cash it in, but you’ll need to gather some information first.

A U.S. savings bond is a low-risk investment product that’s backed by the U.S. government and purchased through the U.S. Department of Treasury. Today, you can buy two types of savings bonds: Series EE and Series I bonds. Both earn interest over time, up to their date of maturity — 30 years.

You have to wait at least 12 months from the date of purchase to cash in a savings bond (there’s one exception, which is if you’re affected by a natural disaster). And if you cash it in at any time from one to five years, there’s a penalty: You’ll lose the three prior months’ worth of interest. If you hold onto the bond past five years, there’s no penalty when cashing in.

It’s easy to cash in a savings bond, but it’s important to understand the type of bond you own and the value of holding onto it before you cash yours in. Let’s take a look at how to cash in Series EE or Series I savings bonds.

How does a savings bond work?

Savings bonds have been around since 1935, as a result of legislation passed by President Franklin D. Roosevelt. Bonds were created to help Americans save money and to give the government funds to support efforts such as World War II. When you buy a U.S. savings bond, you’re essentially lending money to the United States government through the Department of Treasury.

The types of savings bonds available for purchase have changed over the years. For example, Series HH savings bonds are no longer sold. Here’s the rundown on Series EE and Series I bonds, the two types of savings bonds sold today.

Series EE bonds

Series EE savings bonds earn a fixed rate of interest each month for up to 30 years. The rate for new bonds is announced by the Treasury each year on May 1 and November 1. EE bonds purchased before May 2005 have variable interest rates. This type of bond is available in an electronic form and can be purchased in penny increments starting at $25 and up to a maximum of $10,000 per calendar year.

Series I bonds

Series I savings bonds earn a fixed rate of interest that’s adjusted for inflation twice a year. Like Series EE bonds, electronic Series I bonds are available in penny increments of $25 to $10,000 per calendar year. Paper Series I bonds (available for purchase only when filing a federal income tax return) are available in amounts of $50, $100, $200, $500 and $1,000 only.

How much are savings bonds worth?

Savings bonds earn interest for 30 years, but rates are relatively low. In May 2020, the U.S. Department of Treasury declared a 0.10% rate for Series EE savings bonds and a composite, or combined, 1.06% interest rate for Series I bonds through Oct. 31, 2020. These rates are comparable to the interest you can earn on some savings accounts but lower than that of some certificates of deposit and money market accounts.

Interest earned on savings bonds is exempt from state and local taxes, and federal income tax is deferred until you cash in your bond or it matures — whichever happens first. If you plan to use savings bonds to pay for qualified education expenses, you may get additional federal tax benefits.

When should you cash in a savings bond?

You can cash in a savings bond once you’ve owned it for a minimum of one year. But if you want to avoid penalties, you’ll need to wait five years. Otherwise, you’ll lose the last three months of interest earned.

The longer you wait to cash in your savings bond, the more your money will grow. Savings bonds continue to grow in value until they reach maturity at 30 years. If your savings bond hasn’t reached its maturity date, you might want to avoid cashing it in unless you plan to invest the money in an account that earns higher interest.

If you want to know how your bond is growing, you can see the current value of your electronic savings bond by logging into TreasuryDirect. For paper bonds, use the U.S. Treasury’s online savings bond calculator.

Can you cash in a savings bond at a bank?

Where you can cash in depends on whether you have a paper or electronic savings bond.

Paper bonds

Paper savings bonds can typically be cashed in at your bank or credit union. If you plan to visit a financial institution where you’re not a member or customer, you may want to see if it will cash your bond before you visit.

Check with the bank to confirm what documents you’ll need to bring. In general, here’s what you should take with you.

  • Your paper savings bond
  • Identification, such as driver’s license
  • If you’re the beneficiary, a copy of the owner’s death certificate

Keep in mind that bonds can’t be cashed in by just anyone. Savings bonds must be cashed in by the bond owner or co-owner, which includes “survivors,” or people named on the bond who inherited ownership after the original owner passed away. If you bought the savings bond through an auction site like eBay, you are not the registered owner (a savings bond is nontransferable) and can’t cash in the bond.

A parent may cash in a child’s savings bond if the child is too young to sign the request for payment and the child lives with the parent — or the parent has legal custody of the child.

Anyone else who wishes to cash in a bond needs to present evidence of the legal right to do so.

At the bank, you’ll sign each bond and receive the cash value. Once you’ve cashed in your bond, the bank will either hand you a 1099 tax form or mail it to you by the end of the tax year.

Paper bonds can also be cashed via mail. To cash in by mail you’ll need to download or order a FS Form 1522 from the U.S. Department of Treasury, get your signature certified and mail the form to the address noted on the form.

Electronic bonds

Electronic bonds can be cashed in by logging into your TreasuryDirect account and setting up a direct deposit to your checking or savings account. The cash amount may be credited to your bank account within two business days.

What’s next?

Cashing in a savings bond can provide fast access to cash when you need it. But if the bond is only a few years old, cashing it in could mean losing interest earnings, along with future growth.

If your bond has reached maturity but you don’t need the cash from it for now, cashing it out and putting the money into a high-yield savings account, money market account or CD could help you continue to earn interest.

About the author: Sarah C. Brady is a San Francisco–based financial consultant, workshop facilitator and writer. In addition to writing for Credit Karma, Sarah writes for Experian, LendingTree, Magnify Money, MSN News and more. In her … Read more.