How and Where to Cash in a Savings Bond

Savings bonds are a secure investment in the U.S. government, where individuals lend money to the federal government. These debt instruments accrue interest over time. Redemption, the process of converting this investment back into cash, allows bondholders to access their principal and accumulated interest. This guide explains how and where to cash in savings bonds, whether in paper form or held electronically.

Understanding Your Savings Bond Before Redemption

Before initiating the redemption process, understand your savings bond’s characteristics, as these factors directly impact its value and eligibility. Savings bonds, such as Series EE and Series I bonds, earn interest for a specific duration, typically 20 to 30 years, until they reach final maturity. After this period, the bonds cease to accrue interest. To maximize your earnings, hold the bond until at least its original maturity, and ideally until final maturity.

A minimum holding period applies to all savings bonds before they can be redeemed. Bonds must be held for at least one year from their issue date. Redeeming a bond before five years have passed from its issue date incurs a penalty: you will forfeit the last three months of interest earned. This penalty applies to both Series EE and Series I bonds.

Savings bonds exist in two primary forms: paper certificates and electronic bonds. Paper savings bonds are physical documents, while electronic savings bonds are held digitally within a TreasuryDirect account. The redemption process varies significantly depending on the bond’s format. Electronic bonds offer greater accessibility and record-keeping through online platforms.

Preparing for Redemption

Gathering the necessary documents and information is a crucial preparatory step before redeeming a savings bond. For any redemption, valid government-issued identification is required, such as a driver’s license, state identification card, or passport. The name on your identification must precisely match the name registered on the bond or in your TreasuryDirect account. If your name has changed, such as due to marriage, you may need to provide additional supporting documentation. Some financial institutions may require two forms of identification.

If you possess a paper savings bond, ensure you have the physical certificate. The bond must be in good condition, as damaged or altered bonds may not be accepted. For electronic savings bonds, access to your TreasuryDirect account is necessary. This means having your login credentials, including your account number, password, and any security questions, readily available.

Finally, have the routing number and account number for the bank account where you wish the funds to be deposited. Direct deposit is the standard method for receiving funds from electronic redemptions and is often preferred for paper bond redemptions as well.

Cashing Paper Savings Bonds at Financial Institutions

Redeeming paper savings bonds typically involves an in-person visit to a financial institution. Many banks and credit unions offer this service, but it is advisable to contact them beforehand to confirm their specific policies. Not all branches or institutions may handle savings bond redemptions, and some may only do so for their own account holders. Some institutions might even require you to be an account holder for a specific duration, such as one year, before they will process a redemption.

Once at the financial institution, you will present the physical paper bond along with your required government-issued identification to a teller. The teller will verify your identity against the bond’s registration. You may be asked to sign the bond, often in the presence of the teller, to complete the redemption process. For redemptions exceeding a certain amount, such as $1,000, a certified signature, potentially from a notary public, might be required.

The financial institution will then verify the bond’s authenticity and its current value. Paper savings bonds must be redeemed for their entire value; partial redemptions are not permitted for these physical certificates. Funds are typically disbursed via direct deposit into your bank account or by check. In some cases, cash may be provided, depending on the amount and the bank’s policy.

Redeeming Electronic Savings Bonds Online

Electronic savings bonds are redeemed conveniently through the TreasuryDirect website, providing a direct online process. To begin, you will log into your primary TreasuryDirect account using your credentials. This online portal is where all your electronic bond holdings are managed.

Once logged in, navigate to the “ManageDirect” tab, and then select “Redeem securities.” From there, you will choose the specific bond or bonds you wish to redeem. TreasuryDirect allows for partial redemptions of electronic bonds, provided that you redeem a minimum of $25 and leave at least $25 remaining in the bond. You can select up to 50 securities for a single redemption transaction.

After selecting the bonds and specifying the redemption amount, you will confirm the linked bank account where the funds are to be deposited. The system will provide a summary of the redemption, including the principal and interest amounts. Once the request is submitted, you will receive a confirmation message. Funds are typically processed quickly, often appearing in your linked bank account within one to two business days. If you encounter issues such as forgotten passwords or locked accounts, TreasuryDirect provides procedures to resolve these through their website.

Tax Implications of Redemption

The interest earned on savings bonds, regardless of whether they are paper or electronic, is subject to federal income tax upon redemption. While most individuals defer reporting interest until redemption, it is also permissible to report the interest annually as it accrues.

A notable advantage of savings bond interest is its exemption from state and local income taxes. However, the interest may still be subject to federal estate, gift, and excise taxes, and potentially state estate or inheritance taxes.

For redemptions exceeding a certain threshold, the bondholder will receive IRS Form 1099-INT. This form details the total interest earned during the tax year and must be reported on your federal income tax return. This form is typically provided by the financial institution that processed the redemption or is made available through your TreasuryDirect account for online redemptions by January 31 of the following year.

In specific situations, the interest earned on savings bonds may be excluded from federal income tax if the proceeds are used to pay for qualified higher education expenses. This exclusion is subject to income limitations and other requirements, such as the bond being issued after 1989 and to an owner at least 24 years old at the time of issue. Taxpayers claiming this exclusion typically need to complete IRS Form 8815.