How Do I Cash In a Bond? The Steps to Take

Cashing in a bond involves converting your investment into accessible funds, which includes the original principal amount along with any accumulated interest. Understanding the steps for redemption is important, as the specific method depends on the type of bond you hold.

Identifying Your Bond Type

Before proceeding with redemption, accurately identify the type of bond you possess. Bonds generally fall into two primary categories that dictate the appropriate cashing-in procedure.

U.S. Savings Bonds are issued directly by the U.S. Department of the Treasury. These non-marketable securities, such as Series EE and Series I bonds, are typically held either in physical paper form or electronically within a TreasuryDirect account. They are designed for individual investors and cannot be freely traded on a secondary market.

Conversely, marketable bonds encompass a broader range of debt instruments that can be bought and sold among investors on a secondary market. This category includes U.S. Treasury bills, notes, and bonds, as well as corporate bonds issued by companies and municipal bonds issued by state and local governments. These bonds are typically held and managed through a brokerage account.

Cashing In U.S. Savings Bonds

Redeeming U.S. Savings Bonds requires specific steps, whether your bonds are in paper or electronic form. You will generally need valid government-issued identification, your Social Security Number, and your bank account information for direct deposit. For paper bonds, the physical bond certificate is also necessary.

For paper savings bonds, you will typically visit a financial institution that offers redemption services. You may need to complete FS Form 1522, Request for Payment of United States Savings Bonds, providing details like the bond serial number, owner’s name, SSN, and bank account information. The institution will verify your identity and submit the redemption request, often requiring your signature to be certified if the bond’s value exceeds a certain threshold, such as $1,000. If an institution does not cash the bond, you can mail the bond and the completed FS Form 1522 directly to Treasury Retail Securities Services. You can typically cash a savings bond one year after its issue date, but redeeming it before five years means forfeiting the last three months of interest.

If your U.S. Savings Bonds are held electronically in a TreasuryDirect account, you will log into your TreasuryDirect account and navigate to the “ManageDirect” section. From there, you can select the specific bonds you wish to redeem and confirm the transaction, with funds typically transferred directly to your linked bank account. Electronic bonds allow for partial redemption, provided at least $25 remains in your account, unlike paper bonds which must be cashed in full.

Redeeming Marketable Bonds

The process for redeeming marketable bonds differs significantly from savings bonds, primarily due to their tradable nature and how they are typically held. These bonds are almost always held electronically within a brokerage account, making your primary requirement access to that account.

If you need to access funds before the bond’s maturity date, you can sell it on the secondary market through your brokerage firm. This involves placing a “sell order” through your online brokerage platform or by contacting a broker representative. The price you receive will depend on prevailing market conditions, including interest rates, which means you might sell it for more or less than its original purchase price. Brokers may charge a commission or a “markdown” for such transactions.

Alternatively, if you hold a marketable bond until its maturity date, the principal amount is automatically returned to your brokerage account. No specific action is required on your part, as the issuer electronically repays the face value of the bond directly to your account. This automatic redemption ensures you receive the full principal value.

Receiving Funds and Tax Reporting

Once a bond is redeemed, the funds are typically disbursed to the bondholder, usually through a direct deposit to a linked bank account. For electronic redemptions of U.S. Savings Bonds via TreasuryDirect, funds may become available within one to two business days. Paper savings bond redemptions processed through a financial institution or by mail may take longer, often several weeks to a few months.

Interest earned on all types of bonds is generally subject to federal income tax. For tax reporting, you will receive a Form 1099-INT from the financial institution that processed the redemption or from TreasuryDirect. This form reports the total interest income earned during the tax year, which you must include on your annual federal income tax return.