How to Cash In Paper Bonds: Methods & Steps
Seamlessly turn your paper savings bonds into cash. Our guide offers clear instructions and methods for a smooth redemption process.
Paper U.S. Treasury savings bonds are a tangible investment backed by the U.S. government. They accrue interest over time, offering a secure savings option. This guide outlines the steps and methods for redeeming your paper savings bonds.
Understanding Your Paper Bonds
Savings bonds come in various series, with Series EE and Series I bonds being the most prevalent. Each series has specific characteristics for interest accrual and maturity. Series EE bonds typically earn a fixed interest rate, while Series I bonds feature a composite rate that adjusts with inflation.
Interest on these bonds is not paid out periodically but is added to the bond’s value, known as accrual. Bonds must be held for at least one year before redemption. Cashing them in before five years forfeits the last three months of interest. Most Series EE and I bonds stop earning interest after 30 years, reaching final maturity.
Gathering Necessary Information and Documents
Before initiating redemption, gather all required information and documents. A valid government-issued photo identification, such as a driver’s license or state ID, is required to verify identity. The paper bond(s) are also necessary.
You will need to provide bank account information for direct deposit. For mail-in redemptions or when a financial institution requires it, FS Form 1522, “Special Form of Request for Payment of United States Savings and Retirement Securities,” is used. This form is available from TreasuryDirect and requires bond details like serial number and issue date, your Social Security number, and bank direct deposit information. If the total value of bonds exceeds $1,000, your signature on FS Form 1522 requires certification by a notary public or an authorized certifying officer at a financial institution.
Methods for Redeeming Paper Bonds
Several methods are available for redeeming paper bonds. Each has its own procedure, and your choice depends on individual circumstances.
Redemption at a financial institution, such as a bank or credit union, is a common method. Not all institutions offer this service, and some may only do so for account holders. Contact your chosen bank or credit union beforehand to confirm their policy and required documentation. When redeeming in person, present your identification and the bond(s), sign the bond(s) in the presence of the teller, and verify direct deposit information.
Alternatively, bonds can be redeemed by mail directly through the U.S. Department of the Treasury. This involves completing FS Form 1522 and securely mailing it along with the signed bonds to the address on the form. Using certified mail with return receipt is recommended for safe delivery and proof of mailing. Processing times for mail-in redemptions typically take several weeks.
A third option is converting paper bonds to electronic form within a TreasuryDirect account before redemption. This requires opening a TreasuryDirect account. Within your account, initiate the conversion process by entering bond details and mailing the bonds to TreasuryDirect. Once converted, they appear in your electronic account and can be redeemed online. This method offers digital management and allows for partial redemptions of electronic bonds, unlike paper bonds which must be cashed for their full value.
What Happens After Redemption
After bonds are submitted for redemption, funds are delivered through direct deposit to your specified bank account. Most redemptions processed by TreasuryDirect or financial institutions are completed within a few business days. Mail-in redemptions can take longer, typically several weeks.
Interest earned on savings bonds is subject to federal income tax but is exempt from state and local income taxes. You can defer reporting interest until the bond is redeemed or matures, when all accrued interest becomes taxable. Upon redemption, the processing entity will issue a Form 1099-INT for the interest earned. This form is used for reporting taxable interest income on your federal tax return for the year of redemption.