How to Redeem a Savings Bond: Methods and What to Expect

U.S. savings bonds are debt securities issued by the United States Department of the Treasury, backed by the U.S. government. They accumulate interest over time, offering a secure investment. Converting a savings bond into cash, known as redemption, involves specific procedures. This guide provides an overview of the steps involved in redeeming savings bonds, from confirming eligibility to understanding the financial implications.

Determining Eligibility and Gathering Documents

Before initiating the redemption process, bondholders must confirm their bond’s eligibility and gather all necessary documentation. Savings bonds, such as Series EE and Series I bonds, generally become eligible for redemption after a minimum holding period of one year from their issue date. Redeeming a bond before five years, however, results in a penalty where the last three months of interest are forfeited. Most savings bonds cease earning interest and reach full maturity after 20 to 30 years, depending on the series.

For any redemption, essential documents include the physical paper bond, if applicable, and valid government-issued identification, such as a driver’s license or passport. Proof of your Social Security Number (SSN) or Taxpayer Identification Number (TIN) is also required. If redeeming paper bonds by mail, FS Form 1522 is necessary, which requires details such as bond serial numbers, owner information, and bank account details for direct deposit.

The individual authorized to redeem a bond is the registered owner or a co-owner listed on the bond. If the owner is deceased, a surviving beneficiary can redeem the bond by presenting a copy of the death certificate. A legal representative of an estate may redeem bonds with appropriate legal documentation. Minors may sign redemption forms if deemed competent by a certifying officer, or a parent may redeem bonds on their behalf with proper identification like a birth certificate.

Options for Redemption

Once eligibility is confirmed and all required documents are assembled, bondholders can proceed with redemption. The method chosen depends on whether the bond is held electronically or in paper form. Each approach has specific steps.

Electronic savings bonds, primarily Series EE and I bonds, are redeemed directly through a TreasuryDirect account. Bondholders log into their account, navigate to the “ManageDirect” section, and select the option to “Redeem securities.” From there, they choose the specific bonds or a portion of a bond to redeem, with a minimum redemption amount of $25.

For paper savings bonds, two primary redemption methods are available. Many financial institutions offer in-person redemption services. Bondholders present the physical bond, along with their government-issued identification and any necessary forms, to a teller. It is advisable to contact the financial institution beforehand, as some may require the bondholder to be an existing account holder or have an account open for a certain period.

Alternatively, paper bonds can be redeemed by mail directly to the U.S. Treasury. This process involves completing FS Form 1522, detailing the bonds to be redeemed, and providing direct deposit information. If the total redemption value exceeds $1,000, the bondholder’s signature on the form must be certified by an authorized financial institution representative, such as a bank notary. The completed form, along with the physical bonds, is then mailed to the address provided on FS Form 1522.

Understanding Payment and Tax Obligations

After a redemption request is submitted, the funds are disbursed via direct deposit, particularly for online redemptions through TreasuryDirect. Funds from electronic bond redemptions appear in the linked bank account within one to two business days. For redemptions processed by mail, the time frame for receiving funds can range from several weeks to a few months, depending on processing volumes and the chosen payment method. In-person redemptions at financial institutions result in same-day payment, either through a direct deposit or a check.

The interest earned on savings bonds carries tax implications. This interest is subject to federal income tax, but it is exempt from state and local income taxes. Taxpayers have the option to defer reporting the interest until the bond is redeemed or reaches final maturity, whichever occurs first. Most individuals defer taxation until redemption, simplifying annual tax reporting.

Upon redemption, the interest earned will be reported to the Internal Revenue Service (IRS) on Form 1099-INT. This form details the amount of interest income received during the tax year. It is important to review this document carefully when preparing federal income tax returns. In certain circumstances, such as using bond proceeds for qualified higher education expenses, the interest may be partially or entirely excluded from federal income tax, subject to specific income limitations and other requirements.