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Published: Nov 20, 2023 11 min read

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Savings bonds have long been a popular option for those looking to lock in competitive interest rates with virtually risk-free investments. With rising interest rates, savings bonds have increased in popularity to the point that the TreasuryDirect website has crashed numerous times because it was overwhelmed with traffic.

The two types of savings bonds currently offered by the Treasury provide a great way to earn interest while avoiding the market volatility you could experience with other investments like stocks, mutual funds and exchange-traded funds. However, many bondholders are uncertain about how to redeem their bonds before or after the maturity date.

Read on to learn about how to redeem savings bonds, including where you can do it, what the early withdrawal penalties are and what the tax implications could be.

How to cash in a savings bond

Savings bonds can be redeemed at any point after one year from their issue date. However, the steps required for cashing in these bonds depends on whether you are holding electronic bonds or paper bonds.

Electronic savings bonds can be redeemed online via the treasurydirect.gov. The funds can be transferred via direct deposit to your linked bank account (e.g., checking, traditional savings or high-yield savings account) in as little as two business days. For paper bonds, you must take them to a physical financial institution. In some instances, the bank or credit union may require you to be an account holder in order to cash in paper bonds.

Savings bonds must be held for at least one year before being cashed in, and if they are redeemed before they’ve been held for five years, the bondholder must forfeit some of the interest accrued.

Because savings bonds are often gifted to others, it’s especially important to first understand what they are and the differences between the two types currently offered by the U.S. government.

What is a savings bond?

Savings bonds are debt instruments sold by the Treasury Department that the U.S. government uses to fund spending. They have 30-year maturities and interest is compounded twice a year. The interest rate can be fixed or variable depending on the type of savings bond and how near it is to maturity.

Acting as loans to the government, savings bonds are considered one of the safest investments available, which makes them attractive to conservative and risk-averse investors. That’s because they are backed by the full faith and credit of the U.S. government, which has never defaulted on its debts.

Learn more about why they make sound investments by reading our guide to the best savings bonds.

Types of savings bonds

There have been numerous types of savings bonds issued by the Treasury Department since 1935. Most of them have been retired, such as the Series A and Series E bonds. Currently, the government offers two types: Series I and Series EE. The following section details both.

Series I savings bonds (aka I bonds)

Series I bonds are designed to protect investors against inflation. With these savings bonds, you earn both a fixed interest rate and a variable interest rate that’s adjusted twice annually (May 1 and Nov. 1) in accordance with the current inflation reading as determined by the Consumer Price Index (CPI). I bonds have a 30-year maturity.

Series EE savings bonds

Series EE bonds are appealing because they are guaranteed to double in value in 20 years. Since May 2005, these bonds feature a fixed interest rate for the first 20 years and can be adjusted after. Like I bonds, Series EE bonds mature after 30 years.

Retired savings bonds

The Treasury Department lists 19 retired or historical savings bonds on the TreasuryDirect website. Even though these paper bonds are no longer available for sale, most of them can still be redeemed by bondholders.

Three ways to cash in a savings bond

There are three principal means of redeeming a savings bond. This section describes each.

Online via TreasuryDirect

The first way to redeem a savings bond is online via the treasurydirect.gov. This process is seamless if you already have a TreasuryDirect account that you used to initially purchase the savings bonds:

  • After logging in, click on the MangeDirect tab at the top of the page.
  • Next, under My Securities, click on “Redeem securities.”
  • On the Redemption page, choose the button beside the security type you want to redeem.
  • Click “Submit.”

You can either redeem the entire savings bond or any amount above $25. If you cash in a partial amount, you must leave at least $25 in your TreasuryDirect account. Additionally, if you cash in a part of the bond, you will only receive interest on the amount redeemed. For tax purposes, you’ll have to complete Form 1099-INT, which is used to declare taxable interest income.

If you don’t have a TreasuryDirect account but you do have electronic savings bonds (e.g., gifted bonds), you’ll have to set up an account. Doing so will require some personal identifiable information, like your Social Security number.

Once your account is set up, you’ll be asked to link a savings or checking account, which is where the funds will be deposited after the savings bonds are redeemed. Then, follow the instructions listed above to cash in your electronic savings bonds.

At a financial institution

Though electronic savings bonds are the more popular option, if you received a tax refund after filing your tax return, you can use up to $5,000 to purchase paper Series I savings bonds in $50 increments using IRS Form 8888. Those paper bonds can be redeemed at financial institutions. Only electronic Series EE savings bonds are available now, but older paper bonds can still be redeemed at some banks and credit unions.

In some instances, the financial institution where you intend to cash in the bonds will require you to be an account holder. Unlike electronic savings bonds, you cannot cash a partial amount of a paper savings bond. For tax purposes, when redeeming paper savings bonds, the bank will complete and submit Form 1099-INT for you.

Via mail

The last option you have for redeeming your savings bond is to do so through the mail. This requires you to complete FS Form 1522. It’s important to note that if the value of the bond you are cashing in exceeds $1,000, you must have your signature certified by a notary public, financial institution or a Treasury-recognized Signature Guarantee Programs participant or a Treasury-approved Medallion Programs participant. After the savings bond is redeemed, for tax purposes, you’ll have to complete Form 1099-INT.

How savings bonds are taxed

Series I and Series EE bonds are taxed identically. When they mature or if they are cashed in early, the taxable portion is the bond’s face value minus the original price. That remaining amount is the interest gained.

According to the IRS, that interest accrued is subject to federal income tax. However, these bonds are not subject to state or local income taxes. If you inherit savings bonds, as a beneficiary, you may have to pay federal income taxes on the interest if the executor doesn’t include the pre-death interest amount in the deceased’s final tax filing. To help you determine your tax liability, you can use a savings bond calculator to determine how much interest you’ll gain.

In some circumstances, you can avoid paying taxes on the interest received from savings bonds if those funds are used for qualifying educational expenses. The TreasuryDirect website explains how you can use bonds to pay for higher education.

Redeeming savings bonds before maturity

Series I and Series EE bonds mature after 30 years. That doesn’t mean you have to wait until the maturity date to redeem them, though. However, if you don’t meet certain criteria, you could face early withdrawal penalties.

You have to hold either type of savings bond for at least one year. After that first year, you can cash them in. But if you do so before five years from the date of issuance, you will have to forfeit the last three months of interest accrued. Bondholders who’ve held savings bonds for at least five years can redeem them without penalty.

What is a savings bond FAQs

How long does it take for savings bonds to mature?

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Both Series I and Series EE savings bonds have 30-year maturities. Bondholders can redeem them before their maturity dates, though, as long as they've held them for at least one year. Early withdrawal penalties are not assessed for savings bonds held for a minimum of five years.

Do savings bonds have variable interest rates?

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Series I bonds have both a composite rate, which is fixed, and a variable rate, which is adjusted every six months to reflect the latest CPI reading. Series EE bonds have a fixed interest rate for the first 20 years. After that, the rate can be adjusted for the remaining 10 years before maturity.

Are savings bonds taxed as income?

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Only the interest gained on savings bonds is considered income by the IRS. Therefore, any interest accrued is subject to federal income tax, but not state or local income taxes. In some instances, using the interest for qualified education expenses can reduce or eliminate your tax liability.

Summary of Money's How to Cash in a Savings Bond

Savings bonds are a type of debt security offered by the U.S. Department of the Treasury that pays investors interest over the course of 30 years. Because they are backed by the full faith and credit of the U.S. government, they are considered low-risk investments that can diversify your portfolio and help you achieve your personal finance goals.

The Treasury Department currently offers two types of U.S. savings bonds: Series I and Series EE bonds. These bonds can be redeemed at any time after the first year, though bonds cashed in before five years are subject to early withdrawal penalties. These savings bonds can be redeemed in one of three ways: online via TreasuryDirect, at financial institutions or through the mail. After cashing in your savings bonds, the interest received is considered taxable income by the IRS.