You’ve got bonds, the government’s got cash

Here’s the good news: Cashing in savings bonds is generally an easy process. The exact process will depend on the type of bond, but either a local bank or the Treasury Department can help you transform grandma’s gift into cash in hand.

What are savings bonds?

A savings bond is a type of debt security issued by the federal government to support its spending and investments. When you purchase a U.S. savings bond, you’re lending the government money. In return, the government agrees to pay you back, with interest, on a specific date (known as the bond’s maturity date).

Over the years, the Treasury has issued several types of savings bonds. While some are no longer available, it currently issues two types: Series EE and Series I. 

Series EE savings bonds

You purchase Series EE savings bonds at face value, and after 20 years, their value doubles. They continue to earn interest for 30 years, at which point the bond matures and stops earning interest. 

You can buy Series EE bonds electronically via the TreasuryDirect website and purchase a maximum of $10,000 per year.

Series I savings bonds 

Series I bonds hedge against inflation and work differently than Series EE bonds. The interest rate on these bonds has a fixed plus a variable component adjusted semiannually, so your interest rate can adjust every six months as long as you hold the bond. And while these savings bonds mature after 30 years, you can cash them in earlier. They’re illiquid or not eligible for redemption for the first year of ownership. If you cash them in between years 2 through 5, you’ll pay a penalty of three months’ interest.    

Series I bonds can be purchased electronically or with your tax refund. The maximum you can buy in one year is $10,000 in electronic bonds and an additional $5,000 in paper bonds using your tax refund.

The process for cashing in a bond will differ depending on whether you have electronic or paper savings bonds.

How do you cash in savings bonds?

First, you’ll need to determine whether you have an electronic or paper savings bond. Once you know the bond type, you can determine how to cash it in.

Cashing in electronic savings bonds

The process for cashing in electronic savings bonds is simple: Just visit TreasuryDirect and use these steps: 

1. Log into your TreasuryDirect account. By logging in, you’ll have instant access to your electronic bonds. 
2. Select your savings bonds. Find and select the savings bonds you want to cash in from your account dashboard.
3. Opt to redeem. You should see an option to redeem the bond, which you’ll select.
4. Specify how much you’re cashing in. If you’re cashing in part of the bond, specify the amount. If cashing in the entire bond, then select the whole value.
5. Choose where to send the money. Select which checking or savings account you want the money sent to and confirm your banking information. This will usually be the bank account you have linked to your TreasuryDirect account.

Finalize your cash out. Follow any remaining prompts to complete the transaction. Treasury will send the funds to your bank account within a few business days.

Cashing in paper savings bonds

For paper bonds, the process is slightly different and depends on the type of savings bond you have. You can generally cash in paper bonds at most local banks or credit unions. You’ll need to provide identification, and the bank will verify the bonds and your identity before giving you the cash or depositing the money into your account. You also need to cash the bond for its entire value. 

If you have a large amount of bonds to cash, or if the bonds are not in your name, you may need to use the services of a Federal Reserve Bank.

Series EE or I paper savings bonds

If you want to cash your paper savings bond at a bank or credit union, you’ll first need to find out if they provide this service. If so, find out how much they’ll cash at one time and what identification or other documents you’ll need to provide.

Alternatively, you can cash paper bonds through TreasuryDirect. First, fill out Form 1522. You’ll complete the form with information about the bonds you want to cash in, including serial numbers and their value. If you’re cashing in savings bonds with a value of more than $1,000, you’ll also need to get your signature notarized. Then, you’ll mail the form and bonds to the address listed under “where to send.”

Series HH paper savings bonds

You can only cash in Series HH savings bonds through the Treasury. You’ll need to fill out Form 1522 and get your signature notarized if you’re cashing in bonds with a value of $1,000 or moreYou’ll then send the form and bonds to the address provided under “where to send.”.

Before cashing in a Series HH bond, you’ll want to check the date for the next interest payment. These bonds pay interest twice yearly, but the government doesn’t make partial interest payments. So to ensure you get your full interest payment, check the issue month of your Series HH bond at TresuryDirect. Then, you’ll want to wait until the month after your next interest payment to cash in the bond so you don’t miss an interest payment.

Paper bonds from older series

If you have paper bonds from a discontinued series (A, B, C, D, E, F, G, H, J, K, and all Savings Notes), the process for cashing them in is the same for Series HH bonds. 

Do you want to cash in some older savings bonds sitting around? You can use your Social Security number or Taxpayer Identification Number to search the Treasury Hunt database and look up any matured bonds you haven’t cashed. You’ll get information on how to claim and cash any bonds in the database. 

How to cash in a child’s savings bond

If you want to cash in a paper savings bond issued in the name of a child under 18, an adult needs to lead that process.

If you’re the child’s parent or guardian, you’ll write the following statement on the back of the bond and fill in personal details where appropriate:

I certify that I am the parent of [child’s name].

[Child’s name] resides with me

OR

I have been granted legal custody of [child’s name].

[She / he] is ___ years old and is not of sufficient understanding to make this request.

Then sign with your name “on behalf of [child’s name], a minor.”

Once complete, you can cash in the bond at a participating financial institution or through the Treasury.

Cashing in inherited savings bonds

When a loved one dies, you may discover you’re named the co-owner or beneficiary of a paper savings bond. Turning the bond into cash only takes a few steps. 

Series EE and Series I bonds

If you’ve inherited either type of bond and it’s still earning interest, you may want to hold onto it. You can let it earn interest and then cash it out at maturity. You can also have the bond reissued in your name through the TreasuryDirect website. You can also cash the bond using one of the steps mentioned above.

Series HH savings bonds

If you’ve inherited a Series HH bond, you’ll want to follow the guidelines above for checking your interest payment dates. Then, you have two options: Have the bond reissued in your name or receive the interest payments. 

To have the bond reissued in your name, you’ll complete Form 4000 and Form 5396. You’ll then send those forms, the unsigned bond, and a certified copy of the original bondholder’s death certificate to the Treasury. 

If you want to leave the bond as-is and receive the interest payments, complete ​​Form 5396 and send it to the Treasury. If named as a beneficiary, you must also provide a certified copy of the bond holder’s death certificate. You don’t need to provide the death certificate if you’re named as a co-owner.

How much are my savings bonds worth? 

Before cashing in savings bonds, it pays (literally) to know how much the bonds are worth. To find out, you can use the Treasury Direct savings bond calculator. This tool calculates the value of a paper bond based on the series, denomination, and issue date. It also stores the information so you can view it again later.

Do you pay taxes on savings bonds?

The short answer is yes. “The interest earned is subject to federal income tax as ordinary income,” says Jofi Joseph, a certified public accountant based in Alexandria, Virginia. However, he adds, the interest is exempt from state and local taxes. 

If you redeem a savings bond and receive interest, you’ll need to claim it as income on your tax return for that year. Joseph notes that in some cases, interest may be excluded from federal income taxes as well if you use it to pay for eligible higher education expenses for yourself, a spouse, or a dependent during that same year.

If you’re unsure about the best way to report savings bond interest on your taxes, speaking with a tax professional is a good idea.

The takeaway 

Cashing in savings bonds is all about matching your bond type with the best method to get your cash. Whether you redeem a bond online or via mail, your savings bonds can soon give you cash to advance other financial goals. 

Whether you decide to stash your cash in a high-yield savings account or open a Roth IRA, don’t worry. Grandma should be proud, and you’ll enjoy the benefits of her kindness for years to come.