How to Cash Out Your U.S. Savings Bond

U.S. savings bonds are a secure, low-risk, interest-bearing form of government debt issued by the U.S. Department of the Treasury. Backed by the full faith and credit of the U.S. government, they are often used to finance federal needs. Individuals redeem bonds for various reasons, including major purchases, unexpected expenses, or investment reallocation. The redemption process involves specific steps.

Understanding Your Savings Bond’s Eligibility

Before redemption, understand the conditions for cashing a savings bond. Series EE and Series I bonds accrue interest over time and have specific maturity periods. Series EE bonds earn interest for 30 years, guaranteed to double in value after 20 years. Series I bonds also earn interest for up to 30 years, with a rate adjusting for inflation. Bonds stop earning interest at final maturity, making it an opportune time for redemption.

Savings bonds have a minimum one-year holding period. Redeeming a bond before five years from its issue date incurs a penalty: forfeiture of the last three months of interest. For example, a bond held for three years would lose interest from months 34, 35, and 36. This penalty is a key factor when deciding the optimal redemption time.

Legal authorization to redeem a bond depends on its registration. The registered owner or co-owner can typically redeem it. For bonds owned by a minor, a parent can redeem if the child is too young to sign and lives with the parent or the parent has legal custody. For deceased owners, a legal representative or named beneficiary may redeem, often requiring documentation like a death certificate or court orders.

Preparing for Redemption

Proper preparation is important before cashing a savings bond. First, identify if it’s a paper bond or an electronic bond held in a TreasuryDirect account. Electronic bonds are managed online, while paper bonds are physical documents. The bond type dictates preparatory steps and redemption methods.

For in-person paper bond redemption, valid government-issued photo identification, like a driver’s license or passport, is required. Proof of name change, such as a marriage certificate, is needed if applicable. The physical paper bond must be in good condition, as damaged bonds may be rejected. Bond information like serial number, denomination, and issue date will be used for valuation and processing.

For electronic bonds, access to your TreasuryDirect account is paramount, requiring your account number, password, and security question answers. Gather any supporting documentation in advance for specific scenarios, such as redeeming for a minor or as a beneficiary. This includes birth certificates, death certificates, or court orders. Having all required documents ready streamlines the process.

Redeeming Your Savings Bond

The process of cashing a savings bond varies by type. For electronic bonds in a TreasuryDirect account, redemption is online. Log into TreasuryDirect, navigate to “ManageDirect,” and select “cashing securities.” Choose bonds for full or partial redemption (minimum $25 for partial), and enter direct deposit information. Funds typically transfer to a linked bank account within one to two business days.

Paper savings bonds can be redeemed in-person at a financial institution or by mail to Treasury Retail Securities Services. For in-person redemption, contact your bank or credit union first to confirm they offer the service and if you need to be an existing account holder. Present the physical bond and required identification. The institution will process the redemption, often requiring a form, and can disburse funds via cash, check, or direct deposit.

For mail-in paper bond redemptions, complete FS Form 1522, the “Special Form of Request for Payment of United States Savings and Retirement Securities.” This form requires bond details, taxpayer identification, and bank information for direct deposit. If the total value exceeds $1,000, the signature must be certified by an authorized individual like a bank officer or notary. Endorse the bond(s) properly, then mail the form and physical bonds to the provided address. Mail-in redemptions typically take several weeks to a few months for funds to deposit.

Tax Implications of Redemption

Interest earned on U.S. savings bonds is subject to federal income tax but exempt from state and local income taxes. This applies to both Series EE and Series I bonds. Interest accrues over the bond’s life, and for most, tax liability is deferred until maturity or redemption.

When a savings bond is cashed, the interest earned must be reported as federal income. TreasuryDirect or the financial institution will issue Form 1099-INT if interest earned exceeds a threshold, detailing the amount for your tax return. If a bond was transferred, tax responsibility for interest may fall to different owners for different periods.

Interest from savings bonds can be excluded from federal income tax if proceeds fund qualified higher education expenses, known as the Education Savings Bond Program. To qualify, Series EE or I bonds must be issued after 1989 to an owner at least 24 years old at issuance. The exclusion covers tuition and fees for an eligible educational institution for the taxpayer, spouse, or dependent. Form 8815 is used to claim this exclusion, and income limitations apply.