How to Cash a Savings Bond: Step-by-Step Process

U.S. savings bonds represent a low-risk investment opportunity, allowing individuals to lend money to the federal government. These securities are backed by the full faith and credit of the United States government, making them among the safest investment options available. While they do not pay regular interest like traditional bonds, interest accrues over time and is paid when the bond is redeemed.

Understanding Savings Bond Types and Eligibility

Savings bonds are issued in two primary forms: paper and electronic. Paper bonds, largely phased out in 2012, were physical certificates, while electronic bonds are purchased and managed through the TreasuryDirect website. The U.S. Department of the Treasury issues two types of savings bonds: Series EE and Series I bonds.

To redeem a savings bond, the registered owner, a beneficiary (in the event of the owner’s death), or a legal representative must initiate the process. Savings bonds generally have a minimum holding period of 12 months before they can be cashed. If a bond is redeemed within five years of its issue date, the last three months of interest earned are forfeited. Bonds cease earning interest after a certain period, typically 30 years from their issue date, at which point they are considered matured.

Regardless of the redemption method, several documents and pieces of information are required. A valid government-issued photo identification, such as a driver’s license or passport, is necessary to verify identity. Bank account details, including the routing and account number, are needed for direct deposit of funds. For paper bonds, the physical bond itself is essential. Electronic bond redemption requires access to the TreasuryDirect account, including a username, password, and security answers. When redeeming inherited bonds, additional documentation is typically required, such as the death certificate of the original owner and FS Form 5336.

Cashing Paper Savings Bonds

Redeeming paper savings bonds typically involves visiting a financial institution or submitting them by mail. Many banks and credit unions can process paper bond redemptions, though it is advisable to contact the institution beforehand to confirm their policies. Some banks may require you to be an existing account holder, or they might limit the amount that can be cashed.

When cashing paper bonds in person, you will present the bond along with your valid government-issued photo identification. The financial institution will verify your identity and the bond’s validity. If the bond’s value exceeds $1,000, a signature certification may be required on FS Form 1522. Funds are typically disbursed via direct deposit to your bank account or through a check. Paper bonds must be redeemed for their full value, unlike electronic bonds where partial redemption is possible.

Alternatively, paper bonds can be mailed directly to the TreasuryDirect for redemption, especially if a bank cannot assist or for inherited bonds. This method requires completing FS Form 1522. For redemptions over $1,000, a certified signature is often necessary. Securely mail the bonds along with the completed form to the specified Treasury address.

Cashing Electronic Savings Bonds

Electronic savings bonds are redeemed directly through your TreasuryDirect account. Accessing your account requires your username, password, and security answers. Once logged in, navigate to the “ManageDirect” section, then select “Redeem securities.”

Choose the bond or bonds you wish to cash. The system will prompt you to confirm the linked bank account for deposit. Electronic bonds offer partial redemption, allowing you to cash a minimum of $25 while ensuring at least $25 remains in the bond.

After confirming your selection, you finalize the redemption request. Funds are typically transferred to your bank account within one to two business days. TreasuryDirect also allows for setting up recurring partial redemptions.

Tax Considerations

Interest earned on savings bonds is generally subject to federal income tax, but exempt from state and local income taxes. Taxpayers typically report the interest income in the year the bond is redeemed or reaches final maturity. Alternatively, some bondholders may elect to report interest annually as it accrues.

Upon redemption, the Treasury will issue a Form 1099-INT, which reports the interest income for tax purposes. This form is essential for reporting earnings on your federal income tax return. Interest may be excluded from federal income tax if used for qualified higher education expenses. This exclusion is subject to specific conditions, including income limitations and requirements regarding the bond’s issue date and ownership. This education expense exemption applies to tuition and fees, but generally not to expenses like room, board, or textbooks. For personalized guidance on tax implications, consulting a qualified tax professional is advisable.