Is It a Good Time to Cash In Savings Bonds?

Cashing in savings bonds requires evaluating your financial needs and the bonds’ characteristics. These U.S. government-backed investments have features that influence their value over time, guiding your redemption decision.

Understanding Your Savings Bonds

Savings bonds are long-term debt instruments issued by the U.S. Treasury, primarily available in two types: Series EE and Series I bonds. Each type accrues interest differently and has specific maturity periods.

Electronic Series EE bonds, purchased at face value, are guaranteed to at least double in value after 20 years and continue earning interest for a total of 30 years from their issue date. Interest on these bonds compounds semiannually based on a fixed rate set at the time of purchase.

Series I bonds also earn interest for 30 years and are purchased at face value. Their interest rate is a composite of a fixed rate, which remains constant for the bond’s life, and a variable inflation rate adjusted every six months. This inflation adjustment helps protect the bond’s purchasing power.

Both Series EE and Series I bonds cannot be redeemed for at least one year after purchase. Redeeming either type of bond before five years of ownership results in a penalty of the last three months of interest earned.

Assessing Your Bond’s Current Value

To determine the precise current value of your savings bonds, the TreasuryDirect website provides a dedicated Bond Value Calculator. For paper savings bonds, you will need to input the bond’s series, denomination, and issue date into this online tool. The calculator then provides an estimate of its current worth and accrued interest.

If you hold electronic savings bonds, their current value can be accessed directly by logging into your TreasuryDirect account. Within your account, typically under the “Current Holdings” tab, the real-time value of your electronic bonds is displayed.

Factors Influencing Your Redemption Decision

Several factors play a role in determining the optimal time to redeem your savings bonds. Your bond’s interest rate relative to the current economic environment is an important consideration. If prevailing interest rates for other low-risk investments, such as high-yield savings accounts or Certificates of Deposit, are significantly higher than your bond’s current earning rate, it might be beneficial to consider redemption.

For Series I bonds, current inflation trends are particularly relevant; if inflation has decreased, the variable rate component of your bond’s interest may be lower, making it less attractive to hold. Your personal financial situation and immediate needs also greatly influence the decision.

Cashing in bonds can provide liquidity for significant expenditures like a home down payment, higher education expenses, or to establish or replenish an emergency fund. Conversely, if you have no immediate cash needs and your bonds are still earning competitive interest, allowing them to continue accruing interest until maturity, particularly for EE bonds guaranteed to double in value in 20 years, can maximize your return.

Tax Implications of Redemption

Interest earned on savings bonds is subject to federal income tax, but it is exempt from state and local income taxes. When you redeem a bond, the accumulated interest is typically reported to you on Form 1099-INT. Most bondholders choose to defer paying federal income tax on the interest until the bond matures, is redeemed, or its ownership is transferred. However, you have the option to elect to report the interest annually as it accrues.

A tax advantage exists if the bond proceeds are used for qualified higher education expenses. The interest may be entirely or partially excluded from federal income tax if specific conditions are met. These conditions include the bond being issued after 1989, the bond owner being at least 24 years old at the time of issuance, and the modified adjusted gross income falling within IRS-defined limits for the year of redemption.

Qualified expenses typically include tuition and fees for an eligible educational institution, but not room, board, or books. This exclusion is claimed by filing IRS Form 8815.

The Redemption Process

The process for cashing in savings bonds varies depending on whether they are electronic or paper bonds. Electronic Series EE and Series I bonds held in a TreasuryDirect account can be redeemed online. You log into your account, navigate to the “ManageDirect” section, select “Redeem securities,” and specify the checking or savings account where the funds should be deposited. The funds are typically transferred directly to your bank account within two business days.

You can redeem a minimum of $25 or any amount above that in one-cent increments, but a minimum of $25 must remain in the account if only a partial redemption is made.

For paper savings bonds, redemption can usually be completed at most local banks or credit unions. It is advisable to contact the financial institution beforehand to confirm their specific requirements, as some may only cash bonds for account holders or have limits on the amount they will process. You will typically need to present the unsigned paper bond and valid government-issued photo identification, such as a driver’s license.

For redemptions exceeding $1,000, some institutions or direct mail-in redemptions to the U.S. Treasury may require your signature on FS Form 1522 to be certified by a notary public or an authorized financial institution representative. Paper bonds must be cashed for their full value.