How to Cash a Savings Bond: Methods and Requirements

Savings bonds, issued by the U.S. Treasury, represent a secure and low-risk investment option. They provide a way to save money while earning interest over time. Understanding the process for cashing these bonds is important for accessing the accumulated funds and interest. This guide outlines the necessary steps and considerations for redeeming savings bonds.

Eligibility and Requirements for Cashing

Before cashing a savings bond, certain conditions must be met regarding its holding period and ownership. Series EE and Series I savings bonds cannot be redeemed within the first 12 months from their issue date. Attempting to cash bonds before this minimum holding period makes them ineligible for redemption.

A penalty applies if a bond is cashed before five years of ownership. For bonds redeemed within this five-year window, the last three months of interest earned are forfeited. For instance, a bond cashed after 24 months would only receive 21 months of interest.

Savings bonds have original and extended maturity dates, which dictate how long they earn interest. Series EE and Series I bonds earn interest for a total of 30 years. Bonds that have reached their final maturity cease earning interest, making them suitable for redemption. Checking the bond’s issue date helps determine its current value and whether it is still accruing interest.

Only the registered owner, co-owner, or a designated beneficiary can legally cash a bond. In cases of the owner’s death, a beneficiary or an individual with legal authority, such as an executor of an estate, can redeem the bond with appropriate documentation.

Information and Documentation Needed

Gathering the correct information and documentation is a preparatory step before attempting to cash a savings bond. For physical paper bonds, the original bond certificate is required. If the paper bond is lost, stolen, or destroyed, submit FS Form 1048, “Claim for Lost, Stolen, or Destroyed United States Savings Bonds,” to the Bureau of the Fiscal Service for replacement or redemption.

When dealing with electronic bonds held in a TreasuryDirect account, access to the account is necessary. This requires the correct username, password, and account number to log in. Valid government-issued photo identification, such as a driver’s license or passport, is required to verify identity. Some financial institutions may require two forms of identification.

If a bondholder’s name has changed since the bond was issued, proof of the name change, such as a marriage certificate, may be needed. For direct deposit of funds, having accurate bank account information, including the routing and account numbers, is essential. If the bond value exceeds a certain amount, or if mailing the bond for redemption, a certified signature may be required.

Cashing Methods

The method for cashing a savings bond depends on whether it is a paper bond or an electronic bond held in TreasuryDirect.

For paper bonds, one common approach is to cash them at a local financial institution, such as a bank or credit union. Contact the institution beforehand to confirm they offer this service and to inquire about any specific requirements or limits. When cashing in person, the bondholder presents the physical bond and their identification. The bond may need to be signed in front of a teller or bank official.

If a bank is not an option, or for larger amounts, paper bonds can be redeemed by mail through Treasury Retail Securities Services. This process involves completing FS Form 1522, “Request for Payment of United States Savings Bonds.” The bondholder must mail the form along with the physical bond. For redemptions exceeding a certain value, the bondholder’s signature on the form must be certified by an authorized individual. The funds are then direct deposited into the provided bank account.

Electronic bonds held in a TreasuryDirect account offer a more streamlined online redemption process. To cash these bonds, the owner logs into their TreasuryDirect account. Within the account, they navigate to the “ManageDirect” section and select the option to “Redeem securities.” The system guides the user to select the specific bond(s) for redemption and specify the amount, which can be full or partial redemption for electronic bonds, with a minimum redemption of $25. The funds are then transferred electronically to the linked bank account within two business days.

Understanding Proceeds and Tax Considerations

After a savings bond is cashed, the bondholder receives the principal amount plus any accrued interest. The interest earned on savings bonds is subject to federal income tax. However, this interest is exempt from state and local income taxes. This federal taxation means the interest income must be reported on the bondholder’s federal tax return.

Interest income from savings bonds is reported on Form 1099-INT. This form is issued by the financial institution that cashes the bond or by TreasuryDirect for electronic redemptions. The 1099-INT will include all interest the bond earned over its lifetime if the interest reporting was deferred.

Bondholders have the option to defer reporting the interest until the bond matures, is cashed, or changes ownership. Alternatively, interest can be reported annually as it accrues. Deferring reporting until redemption can result in a larger lump sum of taxable interest in the year the bond is cashed.

In specific circumstances, the interest earned on savings bonds may be tax-exempt for federal purposes if used for qualified higher education expenses. Eligibility for this education exclusion is subject to income limitations based on the taxpayer’s modified adjusted gross income in the year the bond is redeemed and education expenses are paid. The exclusion is reduced and eventually eliminated above certain income thresholds.