How to Cash in a Savings Bond

Cashing a savings bond involves understanding its characteristics and following specific procedures to redeem its value. This process requires identifying the bond type and selecting the appropriate cashing method.

Understanding Your Savings Bond

Before attempting to cash a savings bond, it is helpful to understand its type and maturity status. The U.S. Treasury issues different series of savings bonds, with Series EE and Series I bonds being the most common today. Series EE bonds earn a fixed rate of interest and are guaranteed to double in value over 20 years, even though they continue to earn interest for up to 30 years. Series I bonds offer a variable interest rate that adjusts based on inflation, also earning interest for up to 30 years.

Older series, such as H, HH, and E bonds, may still exist and have different terms, though they are no longer issued. While most bonds can be cashed after one year, redeeming them before five years typically results in forfeiting the last three months of interest. Bonds reach final maturity, meaning they stop earning interest, usually between 20 and 30 years, depending on the series. You can check the current value and maturity date of your bonds using the Savings Bond Calculator on the TreasuryDirect website.

Gathering Necessary Documents and Information

Valid government-issued photo identification, such as a driver’s license, state ID, or passport, is necessary to verify the bond owner’s identity. The Social Security Number (SSN) of the bond owner or owners is also required for tax reporting purposes. If direct deposit of funds is desired, the bank name, routing number, and account number for the intended recipient account will be needed.

For paper bonds, the physical bond must be in good condition for presentation. In certain situations, such as cashing paper bonds by mail or if the bond is in the name of a deceased person, specific forms like FS Form 1522 may be required. This form collects details such as bond descriptions, taxpayer identification, and bank information for direct deposits.

Choosing Your Cashing Method

Many banks and credit unions offer bond cashing services, particularly for paper savings bonds. It is advisable to contact your financial institution beforehand, as some may only cash bonds for their existing customers or have specific policies regarding the amount they will process.

TreasuryDirect serves as the official online platform for managing and redeeming electronic savings bonds. It also provides a mechanism for converting paper bonds to electronic form for easier cashing. Alternatively, bonds can be cashed by mail directly with the U.S. Treasury. This method often involves completing specific forms and sending them to a designated address.

Cashing Your Bond Step-by-Step

For paper bonds cashed at a bank or financial institution, you will present the physical bond along with your valid government-issued photo identification. You may need to sign the bond in the presence of a bank official, and for amounts over $1,000, a certified signature, such as from a notary public, might be required. Funds are typically disbursed in cash or direct deposit.

Electronic bonds held in a TreasuryDirect account can be redeemed by logging into your account online. From the ManageDirect section, you select the option to redeem securities and choose the specific bond or portion of a bond you wish to cash. You will then enter or confirm your bank account details for direct deposit. The payment for electronic redemptions generally transfers to your checking or savings account within one to two business days.

If you have paper bonds but prefer the electronic redemption process, you can convert them to electronic form first. This involves completing FS Form 1522 and mailing it along with your paper bonds to the Treasury. Once the bonds are converted and appear in your TreasuryDirect account, you can follow the electronic cashing steps. For cashing bonds by mail directly to the Treasury, you must complete FS Form 1522, ensuring all required information is accurate. The form and the physical bonds should be mailed to the address specified on the form, often with a certified signature if the value exceeds $1,000.

Tax Implications

Interest earned on savings bonds is generally subject to federal income tax. However, this interest is exempt from state and local income taxes. Bond owners have the option to report the interest annually or defer reporting it until the bond is cashed, reaches final maturity, or is otherwise disposed of. Most individuals choose to defer the tax payment until redemption.

Under specific conditions, the interest earned on Series EE and I bonds issued after 1989 may be tax-free if used for qualified higher education expenses. This Education Savings Bond Program requires the bond owner to be at least 24 years old at the time of purchase and the funds must cover tuition and fees at an eligible educational institution. Certain income limitations apply to this exclusion, and not all educational expenses qualify, such as room and board. It is advisable to consult a tax professional for personalized guidance regarding your specific tax situation.