Savings bonds are a popular and secure way to invest money. Many people receive them as gifts or buy them to save for long-term goals like education, retirement, or a rainy day fund. If you have savings bonds and are ready to use the money, you might wonder how to cash them in. This guide will help you understand the process, whether you hold paper bonds or electronic ones.
We’ll look at where to cash them, when it’s the best time to do it, what documents you’ll need, and how taxes work with savings bonds. This way, you’ll feel confident and prepared when it’s time to turn your bonds into cash.
What Are Savings Bonds?
Savings bonds are issued by the U.S. government. They are considered a very safe type of investment because they are backed by the government. They don’t grow quickly like some stocks or mutual funds, but they are steady and reliable.
There are two types of U.S. savings bonds that are still available today: Series EE and Series I.
Series EE bonds are sold at face value. They earn a fixed interest rate and are guaranteed to at least double in value if held for 20 years. Even after that, they keep earning interest for a total of up to 30 years.
Series I bonds also earn interest, but they are different because the interest rate changes over time. They are designed to protect your money from inflation, so the rate adjusts twice a year. These bonds also earn interest for up to 30 years.
When Can You Cash In Your Bonds?
Savings bonds can’t be cashed right away. You must hold onto them for at least one full year before they can be redeemed. This waiting period is a strict rule.
If you cash in your bond before it is five years old, you will lose the last three months of interest as a penalty. That’s the cost of getting the money early.
Once your bond is five years or older, you can cash it in without a penalty. After 30 years, the bond stops earning interest, so it’s a good idea to cash it if you haven’t already.
Where Can You Cash In Your Bonds?
The way you cash your bond depends on whether it’s a paper bond or an electronic bond.
If you have a paper bond, most banks or credit unions can help you redeem it. Some banks may ask that you already have an account with them. They may also have limits on how much they will cash at once, so it’s a good idea to call ahead and ask.
If your bank doesn’t cash savings bonds or if you prefer, you can also mail your bond to the U.S. Treasury. You will need to fill out a form and include your bond and ID information. You might also need to have your signature certified, depending on how much you’re cashing in.
For electronic bonds, everything is done online through the TreasuryDirect website. You log into your account, choose the bond you want to cash, and follow the steps on the site. The money is usually sent to your bank account within one business day.
What Do You Need to Redeem a Bond?
To cash a bond, you must prove that you are the person who owns it. You will need a photo ID, such as a driver’s license or passport.
If your name on the bond doesn’t match your current legal name, you’ll need documents showing the name change. A marriage certificate or court order is usually enough.
In some cases, someone else might be cashing the bond for the owner. For example, if the bond’s owner has died, a beneficiary can redeem the bond by showing a certified death certificate and proof of their right to the bond.
If you’re acting for someone else with legal permission, you’ll need papers like a power of attorney, a guardianship document, or a court order.
Parents can cash in bonds for their minor children, but they’ll need to show proof that they are the legal guardian.
How Are Savings Bonds Taxed?
Interest earned on savings bonds is taxed by the federal government, but not by state or local governments. You can report the interest when you cash the bond, or you can choose to report it each year as it grows. Most people wait until they cash the bond to report it.
You’ll get a tax form called 1099-INT, which shows how much interest you earned. If you cash the bond at a bank, the form may come from the bank. If you use TreasuryDirect, the form will be in your online account the following year.
There’s also a special tax break if you use savings bonds to pay for qualified education expenses. If you meet certain income limits and the bond is in your name, you may be able to exclude some or all of the interest from your federal taxes. The expenses must be for tuition or fees at eligible schools, and you must use the money in the same year as the expense.
What If Your Bond Is Lost?
If your paper bond is lost, damaged, or stolen, don’t worry. You can request a replacement or have it cashed without the original. You’ll need to fill out a form and give as much detail as you can about the bond, including the serial number if you know it. The Treasury will investigate and process your request.
Electronic bonds are stored securely online, so there’s no risk of losing the physical document. As long as you remember your TreasuryDirect login, you’ll always be able to access your bonds.
Tips for Cashing Bonds
It’s a good idea to check the value of your bond before you cash it. You can use the Savings Bond Calculator on the Treasury website to see how much it’s worth today. This helps you decide if now is the right time to cash it.
Try to avoid cashing in your bond before it’s five years old. That way, you won’t lose any interest as a penalty. If you can wait until the bond matures, you’ll get the full value.
Also, be sure to think about taxes before you redeem a large bond. If it earns a lot of interest, that amount will be added to your income for the year and may increase your tax bill. Some people spread out redemptions to stay in a lower tax bracket.
Keep a copy of everything you submit when cashing in a bond. Save the forms, receipts, and confirmations for your records. It’s especially helpful during tax season or if any issues come up later.
What About Inherited Bonds?
If someone leaves you a savings bond in their will or as a beneficiary, you can cash it in. First, you’ll need a certified copy of their death certificate and papers showing that you are the rightful owner.
Sometimes this means providing a copy of the will, a legal letter, or a court order. If the bond lists you as a beneficiary, the process is simpler. You just need to prove your identity and submit the bond with the right paperwork.
Taxes still apply to inherited bonds. You may owe interest earned since the original owner passed away, so it’s a good idea to talk with a tax advisor or accountant if you’re unsure.
Why It’s Important to Keep Track of Your Bonds
Savings bonds are long-term investments, and it’s easy to forget about them. But bonds that have matured no longer earn interest, so holding onto them doesn’t help you. It’s a good idea to check every year and see if any of your bonds are ready to cash.
If you have old paper bonds stored away, dig them out and see if they are still earning interest. You can look up their value and maturity date online. For electronic bonds, make sure your TreasuryDirect account is up to date and that you still have access to it.
Cashing in bonds when they’ve reached maturity ensures you’re making the most of your investment.
Conclusion
Cashing in your savings bonds is a simple process, once you know the steps. Whether you have paper bonds or electronic ones, you’ll need to show you own them and follow the rules. Make sure you’re aware of the holding period, interest penalties, and tax requirements.
It’s worth checking your bonds regularly and planning ahead, especially if you’re using them for something important like education or retirement. With a little preparation, you can turn your savings bonds into real, usable funds when the time is right.
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