What to Do With Savings Bonds: Redeeming and Transferring

United States savings bonds are debt securities issued by the U.S. Department of the Treasury, representing a loan from an individual to the federal government. Backed by the full faith and credit of the U.S. government, they are considered a safe investment. This article explains how to understand your savings bonds, the processes for redeeming them, options for transferring or gifting them, and associated tax considerations.

Understanding Your Savings Bonds

Before acting on your savings bonds, understand their type and status. The U.S. Treasury currently issues two main series of savings bonds: Series EE and Series I. Series EE bonds are sold at half their face value and are guaranteed to double in value after 20 years, continuing to earn interest for a total of 30 years. Series I bonds feature a variable interest rate that adjusts with inflation, offering protection against rising costs.

Older series, such as Series HH/H bonds, are no longer issued but may still be earning interest, with the last HH series bonds continuing to earn interest until 2024. Paper savings bonds are no longer sold by financial institutions as of 2012; all new purchases are electronic through the TreasuryDirect website.

Most savings bonds can be redeemed after a minimum holding period of one year. Redeeming them before five years results in a forfeiture of the last three months of interest.

To determine the current value of your bonds, the TreasuryDirect website offers a Bond Value Calculator for paper bonds, requiring you to input the series, denomination, and issue date. For electronic bonds, their current value and interest accrual can be viewed directly by logging into your TreasuryDirect account. Understanding the issue date is important because bonds stop accruing interest after their final maturity date, which is typically 20 or 30 years from issuance depending on the series.

Redeeming Your Savings Bonds

The redemption process depends on whether your savings bonds are electronic or paper. Electronic savings bonds held in a TreasuryDirect account can be redeemed directly online. You simply log into your account, select the bonds you wish to cash, and initiate the redemption process, with funds typically deposited directly into your linked bank account.

For paper savings bonds, redemption often involves visiting a local financial institution, such as a bank or credit union, that offers this service. You will need to present the paper bond along with valid identification, such as a driver’s license. The bondholder must sign the bond in the presence of an authorized bank official.

If a paper bond cannot be redeemed at a local institution, such as in cases involving bonds belonging to a deceased owner or certain older series like HH/H bonds, it typically requires mailing the bond to Treasury Retail Securities Services. This process generally involves completing specific forms, such as FS Form 1522 for electronic payment, and sending them along with the bond. Funds from redeemed paper bonds are usually sent via direct deposit or a mailed check.

Transferring or Gifting Savings Bonds

Savings bonds can be transferred or gifted under specific circumstances, depending on whether they are electronic or paper. Electronic savings bonds held within TreasuryDirect accounts can be transferred between linked accounts, such as from a parent’s account to a minor’s linked account. This facilitates gifts to family members or other individuals who also have TreasuryDirect accounts.

Reissuing paper bonds is a process used to change ownership or beneficiary information in particular situations. This may be necessary due to events like a change of name following marriage or divorce, the death of a registered owner, or the desire to add a co-owner or beneficiary. Such reissues typically require completing specific forms, like FS Form 4000 for transfers due to the death of an owner, and mailing them to the U.S. Treasury.

Gifting new electronic savings bonds to others is also possible through TreasuryDirect. When purchasing a bond as a gift, you can specify the recipient’s TreasuryDirect account, and the bond will be delivered there. Annual purchase limits apply, with individuals generally able to purchase up to $10,000 in each series (EE and I) per calendar year, whether for themselves or as gifts.

Tax Implications of Savings Bonds

Interest earned on U.S. savings bonds is subject to federal income tax. For Series EE and Series I bonds, this interest is generally taxed in the year the bond is redeemed or reaches its final maturity, whichever comes first. However, for older Series H/HH bonds, interest was typically taxed annually as it was paid out.

U.S. Treasury savings bonds are exempt from state and local income taxes. While you report the interest on your federal tax return, it is not subject to state or local income taxes. This exemption provides a tax benefit for bondholders.

There is also a potential exclusion for federal income tax on savings bond interest if the proceeds are used to pay for qualified higher education expenses. To qualify, the bonds must have been issued after 1989 to an owner who was at least 24 years old at the time of issuance, and income limitations apply. The interest is typically reported to you on Form 1099-INT by TreasuryDirect or the financial institution that redeemed the bond, which you then include on your federal income tax return.