How to Turn In Your Savings Bonds for Cash

Savings bonds are a secure, low-risk investment product issued by the U.S. Treasury, offering guaranteed returns. This guide outlines the necessary steps and considerations for converting savings bonds into cash.

Understanding Redemption Prerequisites

Bondholders must meet specific criteria and gather all necessary documentation before redemption. Only the registered owner, a named co-owner, or a legally authorized representative can redeem a savings bond. Legal representatives, such as those acting under a power of attorney or administering an estate, must provide official documentation like a death certificate, court orders, or letters of administration to validate their authority.

Savings bonds have a minimum holding period of 12 months before they can be redeemed. Redeeming a bond within the first five years of its issue date results in the forfeiture of the last three months of interest earned. Different bond series also have varying maturity periods, often ranging from 20 to 30 years, after which interest ceases to accrue.

Individuals will need the physical bond for paper series, or access to their online account for electronic bonds. A valid government-issued identification, such as a driver’s license or passport, is required for verification purposes. Bondholders should have their bank account information readily available, including the routing and account numbers, as direct deposit is the standard method for receiving redemption funds.

Process for Paper Bonds

Redeeming paper savings bonds involves either visiting a local financial institution or submitting the bond directly to TreasuryDirect via mail. When choosing to redeem at a bank or credit union, the bondholder must present the paper bond along with a valid government-issued identification. The financial institution will verify the bond’s authenticity and the identity of the presenter before processing the redemption request.

Financial institutions facilitate the direct deposit of the redemption value into the bondholder’s bank account. This over-the-counter process allows for immediate verification and initiation of the transaction. However, some institutions may have limitations on the redemption amount they can process or may require bondholders to be existing customers.

Alternatively, bondholders can mail their paper bonds directly to TreasuryDirect for redemption. This process requires completing FS Form 1522, “Request for Payment of a Definitive Treasury Security,” which can be obtained from the TreasuryDirect website. The form must be filled out with the bond owner’s details and the bank account information for direct deposit. The completed form, along with the physical bond(s), should be mailed to the address specified in the form’s instructions.

Process for Electronic Bonds

Electronic savings bonds, held within a TreasuryDirect account, offer a streamlined online redemption process. Bondholders must log into their TreasuryDirect account using their account number and password. Navigating to the “ManageDirect” tab within the account interface provides access to bond management options.

From the “ManageDirect” section, individuals can select the electronic bond(s) they wish to redeem. The system allows for either full or partial redemption of a bond’s value, providing flexibility based on the bondholder’s needs. After selecting the bonds and specifying the redemption amount, the linked bank account for direct deposit will be confirmed.

Upon submission of the redemption request, TreasuryDirect provides an immediate online confirmation. The funds are processed and deposited into the designated bank account within one to two business days. This online system eliminates the need for physical paperwork or in-person visits.

Tax Implications of Redemption

The interest earned on savings bonds is subject to federal income tax. Bondholders have two primary options for reporting this income: they can choose to report the interest annually as it accrues, or they can defer reporting the interest until the bond matures, is redeemed, or changes ownership, whichever occurs first. Most bondholders opt for deferral, reporting the accumulated interest in the year of redemption.

Savings bond interest is exempt from state and local income taxes. When the interest earned on a bond exceeds a certain threshold, the Treasury will issue a Form 1099-INT, “Interest Income,” to the bondholder. This form details the total amount of interest paid during the year and is necessary for federal income tax reporting.