Where Can You Cash Your Savings Bonds?

Savings bonds, issued by the U.S. Treasury, offer a secure and low-risk investment option. They represent a commitment from the government to pay back a principal amount with accrued interest, making them a popular choice for long-term savings. This guide outlines the process of cashing both paper and electronic savings bonds.

Eligibility and Requirements for Cashing

To cash a savings bond, certain eligibility criteria and documentation are necessary. Generally, a savings bond must be held for a minimum of one year from its issue date before it becomes eligible for redemption. Cashing a bond before this one-year period is not permitted.

An early redemption penalty applies if a bond is cashed before it has been held for five years. In such cases, the bondholder will forfeit the last three months of interest earned.

Individuals seeking to cash a bond must be the registered owner, a co-owner, a designated beneficiary, or a legal representative if the original owner is deceased. Valid government-issued identification, such as a driver’s license or passport, is typically required, along with a Social Security number. For inherited bonds, documentation like a death certificate or probate court orders may be needed to establish legal entitlement. Paper bonds presented for redemption must be in good, legible condition and free from any alterations.

Cashing Paper Savings Bonds

Redeeming physical paper savings bonds primarily occurs at financial institutions, including banks and credit unions. It is advisable to contact the institution beforehand to confirm their policies and requirements for cashing savings bonds.

To cash a paper bond, the bondholder presents the physical bond(s) along with their required identification to a bank official. The bondholder will then sign the bond(s) in the presence of the official to endorse the redemption. For redemptions exceeding a certain amount, a certified signature, such as from a notary public, may be required on forms.

Unlike electronic bonds, paper savings bonds must be cashed for their entire value; partial redemptions are not possible. Once the transaction is processed, payment can be received either in cash or as a direct deposit into a bank account. If a paper bond is lost, stolen, or destroyed, instructions for replacement or redemption by mail can be found on the TreasuryDirect website.

Cashing Electronic Savings Bonds

Electronic savings bonds are redeemed through the TreasuryDirect website, which is the U.S. Treasury’s online platform for managing Treasury securities. This digital process offers a streamlined way to access funds from electronic bonds without needing to visit a physical location.

To initiate a redemption, bondholders must log into their TreasuryDirect account. From within the account, users navigate to the “ManageDirect” or “Redeem securities” section. They can then select the specific bond(s) they wish to redeem.

Electronic bonds allow for both full or partial redemptions, with a minimum redemption amount of $25. If a partial redemption is chosen, a balance of at least $25 must remain in the account for the bond. The bondholder then confirms the bank account where the funds should be deposited and submits the request. Typically, the funds are deposited into the linked bank account within one to two business days following the submission of the redemption request.

Tax Considerations When Cashing

Interest earned on savings bonds is subject to federal income tax. Bondholders have the option to report this interest annually as it accrues or defer reporting it until the bond is cashed, reaches maturity, or changes ownership. Most individuals choose to defer taxation until redemption, simplifying their annual tax reporting.

A significant tax advantage of savings bonds is that the interest earned is exempt from state and local income taxes. This exemption can provide tax savings, especially for residents in states with high income tax rates. Upon redemption or maturity of a savings bond, the U.S. Treasury or the cashing financial institution will issue Form 1099-INT. This form reports the amount of interest earned during the tax year and is necessary for accurate federal income tax filing.

In certain situations, interest from savings bonds may be excluded from federal income tax if the proceeds are used to pay for qualified higher education expenses. This exclusion is subject to specific income limitations and other requirements outlined by the Internal Revenue Service.