How to Cash Out Different Types of Bonds

Cashing out a bond involves steps that vary by type and how it is held. This guide outlines the requirements and procedures for converting various bonds into cash, from simple online transactions for electronic bonds to more involved steps for paper certificates or marketable securities.

Understanding Different Bond Types

Cashing out a bond depends on its classification. Savings bonds (Series EE and Series I) are direct U.S. government debt obligations. These non-marketable securities are not traded on secondary markets; they are redeemed through TreasuryDirect or by presenting physical certificates to financial institutions.

Series EE bonds double in value over 20 years, earning interest for 30 years. Series I bonds also have a 30-year maturity, combining a fixed rate with an inflation-adjusted variable rate. Both can be redeemed after one year, but redemption before five years forfeits the last three months of interest.

Electronic savings bonds can be partially redeemed, allowing bondholders to cash out a specific amount while leaving at least $25. Paper savings bonds must be cashed for their entire value.

Marketable securities (Treasury bills, notes, bonds, corporate, and municipal bonds) are held within brokerage accounts. These bonds are actively traded on secondary markets, so their value fluctuates. Cashing out these bonds generally involves selling them to another investor before maturity through a brokerage platform. At maturity, the issuer repays the bond’s face value.

Gathering Required Information and Documents

Gathering necessary information and documentation is important for bond redemption. Valid government-issued identification (driver’s license or passport) is typically required. Financial institutions or TreasuryDirect may request secondary identification.

For savings bonds, you need the serial number, issue date, and face value. For marketable securities, have the CUSIP number, purchase date, and original cost basis ready for your brokerage firm.

Banking information is essential for receiving redemption proceeds, including the bank’s name, routing number, and your account number for direct deposit.

For paper savings bonds, you may need to complete FS Form 1522, “Special Form of Request for Payment of United States Savings and Retirement Securities.” This form is available from TreasuryDirect or financial institutions.

When completing FS Form 1522, provide your personal details, the bond’s serial numbers, issue dates, and banking information. If the total redemption value exceeds $1,000, your signature must be certified by an authorized officer or notary, often available at financial institutions.

For marketable securities, your brokerage firm will guide you on specific forms or information required within their online platform or client service channels.

Executing the Redemption Process

For electronic savings bonds in a TreasuryDirect account, the process is self-service. Log in, navigate to “ManageDirect” or “Current Holdings,” select bonds to redeem, and confirm. Funds are disbursed via direct deposit to your linked bank account within one to two business days.

For paper savings bonds, redemption involves visiting a financial institution or mailing bonds to the U.S. Treasury. Many financial institutions may cash paper savings bonds if you have an account and present the completed FS Form 1522 with identification. Contact your bank beforehand to confirm requirements.

If a financial institution cannot assist, or if preferred, mail the physical bonds and the completed, certified FS Form 1522 to the address provided on the form by Treasury Retail Securities Services. Mailing requests generally take longer, potentially four to six weeks for processing.

Cashing out marketable securities (Treasury notes, corporate, or municipal bonds) is handled through your brokerage account. Log into your brokerage’s online trading platform and navigate to the section for selling bonds or managing your portfolio.

Select the specific bond to sell and choose the quantity. Platforms allow market orders to sell at the current price or limit orders to specify a minimum selling price. After confirming details, submit the order.

The settlement period for bonds is typically one business day (T+1) for U.S. government, corporate, and municipal bonds. Your brokerage firm provides confirmation once the sale is executed, and proceeds are deposited into your brokerage account for transfer to your bank.

Understanding Tax Implications

Interest earned on U.S. Treasury savings bonds (Series EE and Series I) is subject to federal income tax but exempt from state and local taxes. Bondholders can defer reporting this interest until the bond matures or is redeemed.

The interest earned will be reported on Form 1099-INT in the year of redemption. If proceeds from bonds issued after 1989 are used for qualified higher education expenses, interest may be excluded from federal income tax, subject to income limitations.

For marketable securities sold before maturity, capital gains or losses may arise. A capital gain occurs if the sale price exceeds your adjusted cost basis; a capital loss occurs if sold for less. These gains or losses are subject to federal and potentially state income tax.

Your brokerage firm typically reports these transactions on Form 1099-B. Interest income from marketable bonds is generally taxable at the federal level, and for corporate bonds, at state and local levels, reported on Form 1099-INT.

Interest income from municipal bonds is generally exempt from federal income tax. It may also be exempt from state and local taxes if the bond was issued by a municipality within your state of residence.