This is the final article in a 3-part series on bonds. Today we’ll discuss how to cash in your saving bonds.
When Paul and I moved into our new home, my mother flew down from Pennsylvania and spent a long weekend with us. As a present, she gave me several bonds she had saved from when I was younger. I went into the first bank I found, even though I had no accounts with them, and redeemed my bonds. In total, they had accrued $329.52 in interest! It was a wonderful (and much needed) surprise.
Now that you’ve been patient and have reached full maturity on your I Bond, or perhaps you simply need to get out of your I Bond because you cannot afford to have your money being used by the US Government any longer, let’s talk about how to redeem them.
Penalties for Redeeming I Bonds Early
While I Bonds mature after 30 years, you only need to hold onto them for one year before you can redeem them for the face value and any interest accrued (see current I-Bonds rates). However, if you redeem your I Bond between one year and five years from purchase, then you will be penalized. The penalty is a forfeiture of the last 3 months of interest payments (remember that interest is accrued monthly, and compounded semiannually). You will incur no penalties for redeeming your I Bonds after five years of purchase.
Where to Redeem I Bonds
Paper I Bonds can be redeemed at most financial institutions, while electronic I Bonds can be redeemed electronically through TreasuryDirect. First you will have to decide whether to redeem the entire bond, or part of it. Partial redemptions of paper or electronic bonds are allowed in $25 increments; you will be issued a new bond in the remaining balance of the old one (there must be at least $25 remaining value).
How to Redeem Savings Bonds
To redeem your paper I Bonds, go to a bank that has a savings bond program (call ahead to verify). Some banks will only allow you to redeem Series I bonds if you are a customer, so check in advance for this requirement.
You will need the following to cash in US savings bonds: the paper bond (you can send off for a new bond in the event that you have lost your old ones using Form 1048), your social security number, and some identification with your signature, such as your driver’s license or passport. You will need to sign over the bonds to the bank by signing the back, and the bank will verify that you are, in fact, the bond’s owner. If you cannot find a local bank to help you, or you are redeeming a large amount of bonds, then contact your local Treasury Retail Securities for help.
To redeem savings bonds online, log into TreasuryDirect and click on the Savings Bonds link. Select the Series I Savings Bond Option, and click on the bond you wish to redeem. Click on the “redeem” button in the next screen (please note: if the bond is less than one year old, there will not be a redeem button). If you have multiple accounts connected to your TreasuryDirect account, then you can choose which account you wish the deposit to go to.
Tax Expectations and Savings
The interest you earn on I Bonds is taxable by the federal government, but not by the state or local government. Therefore, expect to receive a 1099-INT form around tax time the following year after you cash in savings bonds.
You must declare the interest earned as income on your tax return. However, if you have educational expenses from the same year in which you redeemed your I Bond(s), you may not have to pay the federal taxes. Check out information on the how to cash savings bonds to pay for college in order to determine if you qualify for tax savings.