How to Cash In Savings Bonds: A Step-by-Step Guide

U.S. savings bonds are a low-risk investment issued by the U.S. Department of the Treasury, offering a secure way for individuals to save money. These bonds provide a guaranteed return, backed by the U.S. government, and accrue interest over time. This guide covers the necessary preparations, specific steps for both paper and electronic bonds, and important tax considerations for redemption.

Eligibility and Required Preparations

Before redeeming a savings bond, confirm eligibility and gather necessary documentation. Only the registered owner, a co-owner, a beneficiary upon the owner’s death, or a legal representative with proper documentation may redeem a bond. This ensures funds are released to the rightful recipient.

Savings bonds have specific holding periods before they can be cashed without penalty. Bonds issued on or after February 1, 2003, must be held for a minimum of 12 months from their issue date. If a bond is redeemed before it has been held for five years, the bondholder will forfeit the last three months of interest earned. Most savings bonds reach full maturity and stop earning interest between 20 to 30 years after their issue date, making it advisable to redeem them around that time to maximize interest accrual.

To proceed with redemption, several documents are required. These include a valid government-issued photo identification, such as a driver’s license or passport, and the bondholder’s Social Security Number or Taxpayer Identification Number. For direct deposit, which is the most common and secure method of payment, bank account and routing numbers for a checking or savings account are needed.

For physical paper bonds, the original bond certificate(s) must be presented. Electronic bonds require access to a TreasuryDirect account. For lost, stolen, or destroyed paper bonds, specific preparatory steps are required. This involves submitting FS Form 1048, “Claim for Lost, Stolen, or Destroyed United States Savings Bonds,” which requires bond serial numbers and issue dates.

Completing FS Form 1048 requires accurate information. For claims exceeding $1,000, the form must be signed in the presence of a notary public or an authorized certifying officer. This step helps prevent fraudulent claims and ensures the integrity of the redemption process. Additional forms may be necessary for reissuing bonds or redemption by a legal representative.

Redeeming Paper Savings Bonds

Paper savings bonds can be redeemed at a local financial institution, such as a bank or credit union. It is advisable to contact the institution beforehand to confirm their policy on savings bond redemptions, as some may only provide this service to existing account holders or may have limits on the amount they will cash.

At the financial institution, the bondholder will need to present the physical paper bond(s), along with their valid government-issued photo identification and Social Security Number. The institution’s representative will verify the bond’s authenticity and the identity of the presenter. The bondholder will then be required to sign the bond in the presence of the teller or a bank official. Payment is usually issued via direct deposit to a linked bank account, though some institutions may offer cash for smaller amounts.

Alternatively, paper savings bonds can be redeemed by mail directly with the U.S. Department of the Treasury. This method requires completing FS Form 1522, “Special Form of Request for Payment of United States Savings and Retirement Securities Where Use of a Detached Request Is Authorized.” This form can be downloaded from the TreasuryDirect website and must be filled out accurately, providing details about the bonds and the requested payment method, usually direct deposit.

If the total redemption value of the bonds being mailed exceeds $1,000, the bondholder’s signature on FS Form 1522 must be certified by a notary public or an authorized certifying officer. This certification adds a layer of security to the mail-in process. After completing the form and obtaining any required certifications, the form and the physical bonds should be sent via secure mail, such as certified mail, to the address specified on FS Form 1522, which is typically the Treasury Retail Securities Services. Paper savings bonds must be cashed for their full value; partial redemption is not an option for physical certificates.

Mail-in redemptions generally take longer to process compared to in-person or electronic methods, with processing times typically ranging from several days to a few weeks. It is crucial to ensure that all information on the form is correct and that the bonds are securely packaged to prevent loss or damage during transit. The Treasury Department will process the request and deposit the funds directly into the bank account provided on the form.

Redeeming Electronic Savings Bonds

Redeeming electronic savings bonds held in a TreasuryDirect account offers a convenient and faster process compared to paper bonds. The entire transaction can be completed online, allowing bondholders to manage their investments from virtually anywhere.

Log into the TreasuryDirect website using your account credentials. Navigate to the “ManageDirect” section and select the “Redeem securities” option.

The system will display a list of eligible savings bonds in your account. Select the bonds you wish to redeem. Electronic bonds offer flexibility, allowing for either full or partial redemption. A minimum of $25 must be redeemed, and at least $25 must remain on the bond if only a portion is cashed. The system will prompt you to confirm the linked bank account for direct deposit.

After selecting the bonds and specifying the redemption amount, review the transaction details for accuracy. This review includes confirming the principal amount, accrued interest, and the total payment. Submit the request within the online system. A confirmation message or email is typically generated, providing a record of the transaction. Funds from electronic redemptions are usually deposited into the designated bank account within two business days.

Tax Considerations for Redeemed Bonds

The interest earned on U.S. savings bonds is subject to federal income tax. This tax can be deferred until the bond is redeemed or reaches maturity, whichever comes first. Bondholders also have the option to report interest income annually.

U.S. savings bond interest is exempt from state and local income taxes. This exemption provides a meaningful tax benefit, particularly for individuals residing in states with higher income tax rates.

Under certain conditions, interest earned on Series EE and Series I savings bonds may be excluded from federal income tax if proceeds are used for qualified higher education expenses. To qualify, the bond must have been issued to an owner who was at least 24 years old at issuance. The exclusion is subject to income limitations, which vary by tax year and filing status.

Upon redemption, bondholders typically receive Form 1099-INT from TreasuryDirect or the financial institution that cashed the bond. This form reports the total interest earned if it exceeds a certain threshold and is essential for accurately reporting income on federal tax returns. Consulting a qualified tax professional is advisable to ensure proper reporting and to maximize any available tax benefits, especially with educational exclusions or inherited bonds.