Cashing In Your Series EE Savings Bonds

Quick answer

• You can cash in Series EE savings bonds after holding them for at least one year.
• Bonds held for less than five years may incur a penalty equivalent to the last three months of interest.
• To cash them, you’ll typically need to complete TreasuryDirect’s online redemption process or fill out specific forms for paper bonds.
• Interest earned on savings bonds is subject to federal income tax, but it’s exempt from state and local income taxes.
• Consider holding bonds for at least 20 years, as this is when they reach their full maturity and stop earning interest.
• If you’re using the funds for qualified education expenses, you might be able to exclude the interest from your taxable income.

Who this is for

• Individuals who own Series EE savings bonds and need access to their funds.
• Savers who are unsure about the rules and procedures for redeeming their bonds.
• Investors looking to understand the tax implications and potential penalties associated with cashing in savings bonds.

What to check first (before you cash in)

Goal and timeline

Before you decide to cash in your Series EE savings bonds, clearly define why you need the money and when you need it. Are you planning for a down payment on a home in two years, covering an unexpected medical bill next month, or supplementing retirement income in ten years? Your timeline will significantly impact whether cashing in now is the best financial move.

Current cash flow

Understand your current financial situation. Do you have enough regular income to cover your expenses, or are you relying on these bonds to bridge a gap? If your day-to-day finances are stable, you might have more flexibility with your savings bonds. If not, cashing them in might be a necessity, but it’s important to know the implications.

Emergency fund or safety buffer

Do you have a separate emergency fund? This is typically a stash of easily accessible cash (like in a savings account) to cover unexpected expenses. If your emergency fund is insufficient, cashing in savings bonds might deplete your long-term savings, leaving you vulnerable later. It’s often better to use an emergency fund first.

Debt and interest rates

Review any outstanding debts you have, especially high-interest ones like credit cards. If you have debt that’s costing you more in interest than your savings bonds are earning, paying down that debt might be a more financially sound decision than holding onto the bonds. Check the interest rates on your debts.

Credit impact

While cashing in savings bonds doesn’t directly impact your credit score, how you use the funds might. For example, if you use the money to pay down debt, it could positively affect your credit utilization. Conversely, if cashing in leads to unexpected expenses you can’t cover, it could indirectly lead to financial strain that affects your credit.

Step-by-step: Cashing in your Series EE Savings Bond

Step 1: Determine Bond Ownership

What to do: Identify who owns the bond. Is it in your name, your spouse’s, or jointly? For bonds issued to children, a parent or guardian typically needs to act on their behalf.
What “good” looks like: You have clear documentation of the bond’s owner(s) and their Social Security numbers.
Common mistake: Assuming you can cash a bond owned by someone else without proper authorization.
How to avoid it: Always verify ownership and ensure you have the legal right to redeem the bond.

Step 2: Check the Issue Date

What to do: Find the issue date of your Series EE savings bond. This is crucial for understanding redemption rules and potential penalties. You can usually find this on the bond certificate or by looking it up in your TreasuryDirect account.
What “good” looks like: You know the exact month and year the bond was issued.
Common mistake: Forgetting or miscalculating the issue date, leading to incorrect penalty estimations.
How to avoid it: Double-check the issue date against official records or your TreasuryDirect account.

Step 3: Understand the Holding Period

What to do: Determine how long you’ve held the bond. Bonds can be redeemed after one year. However, if redeemed before five years, you’ll forfeit the last three months of interest as a penalty.
What “good” looks like: You know whether your bond has been held for more or less than five years.
Common mistake: Not realizing that holding a bond for just over one year still incurs a penalty if it’s less than five years.
How to avoid it: Be aware that the one-year mark is the earliest redemption, but the five-year mark avoids the interest penalty.

Step 4: Decide if Cashing is Right Now

What to do: Based on your financial goals, timeline, and the potential penalty, decide if now is the optimal time to cash in. Consider if the money is needed urgently or if you can wait to avoid the penalty.
What “good” looks like: You’ve weighed the pros and cons and made an informed decision that aligns with your financial plan.
Common mistake: Cashing in impulsively without considering the long-term implications or the interest penalty.
How to avoid it: Take time to reflect on your financial situation and the purpose of the funds.

Step 5: Gather Necessary Information

What to do: Collect all required personal information: your Social Security number, the bond serial numbers, and your bank account information (for direct deposit). If you’re redeeming paper bonds, you may need to physically sign them.
What “good” looks like: You have all the necessary documents and details readily available.
Common mistake: Missing a piece of information, which delays the redemption process.
How to avoid it: Make a checklist of required items before you start the redemption process.

Step 6: Redeem Bonds Online (for TreasuryDirect Accounts)

What to do: If your bonds are held in a TreasuryDirect account, log in to your account. Navigate to the “Redeem” section and follow the on-screen instructions to select the bonds you wish to cash and choose your bank account for direct deposit.
What “good” looks like: The redemption request is submitted successfully and confirmed by TreasuryDirect.
Common mistake: Entering incorrect bank account details, leading to payment issues.
How to avoid it: Carefully review your bank account and routing numbers before submitting.

Step 7: Redeem Paper Bonds (if applicable)

What to do: If you have paper savings bonds, you’ll need to fill out Form PD 1048, “Application for Redemption of U.S. Savings Bonds.” You may need to have your signature certified by an authorized certifying official (e.g., a bank teller, credit union official, or notary public). Mail the completed form to the address specified on the form.
What “good” looks like: The form is completed accurately, signed, certified, and mailed to the correct address.
Common mistake: Not getting the signature certified or sending the form to the wrong address.
How to avoid it: Read the instructions on Form PD 1048 carefully and ensure all requirements are met.

Step 8: Wait for Funds

What to do: After submitting your redemption request, allow time for the transaction to process. For online redemptions, funds are typically deposited directly into your bank account within a few business days. For paper bonds, it may take several weeks.
What “good” looks like: The funds appear in your designated bank account.
Common mistake: Assuming funds will be available immediately and making other financial commitments based on that assumption.
How to avoid it: Factor in processing time and confirm the deposit before relying on the funds.

Step 9: Report Interest Income

What to do: The interest earned on your Series EE savings bonds is subject to federal income tax. You’ll need to report this interest when you file your federal tax return for the year in which you redeem the bonds. TreasuryDirect may provide a tax statement.
What “good” looks like: You accurately report the interest income on your tax return.
Common mistake: Forgetting to report the interest income, which can lead to penalties from the IRS.
How to avoid it: Keep records of your bond redemptions and consult tax forms or a tax professional if unsure.

Step 10: Consider Education Savings Exclusion

What to do: If you’re redeeming the bonds to pay for qualified higher education expenses for yourself, your spouse, or dependents, you might be able to exclude the interest from your taxable income. There are income limitations and other requirements.
What “good” looks like: You meet all the criteria for the education savings exclusion and correctly claim it on your tax return.
Common mistake: Assuming you qualify for the exclusion without checking the specific income limits and eligibility rules.
How to avoid it: Review IRS Publication 970, “Tax Benefits for Education,” or consult a tax advisor to determine your eligibility.

Common Mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Cashing bonds issued less than 1 year ago	You cannot redeem them at all.	Wait until the bond is at least one year old.
Cashing bonds held for less than 5 years without realizing the penalty	You forfeit the last three months of interest earned.	Wait until the bond is at least five years old to avoid the penalty, or accept the loss of interest if funds are needed sooner.
Not verifying ownership before attempting redemption	The redemption will be rejected, delaying access to funds.	Ensure you are the legal owner or have proper authorization (e.g., power of attorney) to redeem.
Providing incorrect bank account or Social Security information	Funds will not be deposited correctly, leading to delays or lost money.	Double-check all personal and banking details before submitting redemption requests.
Failing to get signatures certified on paper bonds	The redemption request will be denied.	Follow the instructions for obtaining a certified signature from an authorized official.
Forgetting to report interest income on tax returns	You may face IRS penalties and interest charges for underreporting income.	Keep records of all bond redemptions and report the interest earned on your federal tax return.
Assuming all interest is taxable without checking education exclusion rules	You might overpay taxes if you qualify for the education savings exclusion.	Research IRS Publication 970 or consult a tax professional to see if you qualify for tax-free redemption for education expenses.
Not understanding bond maturity dates	You might miss out on earning the maximum interest or redeem too early.	Be aware that Series EE bonds earn interest for 30 years.
Redeeming paper bonds by mail without tracking	The mailed redemption request could be lost, delaying funds and creating uncertainty.	Consider sending important documents via certified mail with return receipt requested.

Decision rules (simple if/then)

• If you need funds within the first year, then you cannot cash in your Series EE savings bond because they are not redeemable until one year after issuance.
• If you need funds between year one and year five, then you will likely forfeit the last three months of interest because you will incur a redemption penalty.
• If you need funds after five years, then you can cash in your Series EE savings bond without penalty because the interest forfeiture period has passed.
• If you have a high-interest debt (e.g., credit card debt), then paying off that debt might be a better use of funds than cashing in your Series EE savings bond because the interest saved often outweighs the bond’s earnings.
• If you are using the funds for qualified education expenses and meet income requirements, then you may be able to exclude the interest from federal income tax because the IRS offers this benefit.
• If your bonds are in a TreasuryDirect account, then you should use the online redemption feature because it is the fastest and most convenient method.
• If you have paper savings bonds, then you will need to complete and mail a redemption form because online redemption is not an option for physical certificates.
• If you do not have a clear financial goal for the funds, then consider holding onto your Series EE savings bond longer to let it continue earning interest, as they earn interest for up to 30 years.
• If you are unsure about the tax implications of redeeming your bonds, then consult a tax professional because tax laws can be complex.
• If you have an adequate emergency fund, then you have more flexibility to wait to redeem your bonds to avoid penalties or for a more opportune time.
• If the bond was issued to a minor, then a parent or legal guardian must sign the redemption request because minors cannot legally sign financial documents.

FAQ

Can I cash in a Series EE savings bond before one year?

No, Series EE savings bonds cannot be redeemed until they have been held for at least one year from their issue date.

Is there a penalty for cashing in a Series EE savings bond early?

Yes, if you cash in a bond that is less than five years old, you will forfeit the last three months of interest earned as a penalty.

How do I redeem paper Series EE savings bonds?

You will need to complete Form PD 1048, have your signature certified by an authorized official, and mail it to the address specified on the form.

What information do I need to cash in a savings bond?

You will need your Social Security number, the bond serial numbers, and your bank account information for direct deposit. For paper bonds, you’ll also need to provide proof of identity for signature certification.

Is the interest earned on savings bonds taxable?

Yes, the interest earned on Series EE savings bonds is subject to federal income tax in the year the bond is redeemed. However, it is exempt from state and local income taxes.

Can I avoid taxes on savings bond interest if I use it for education?

Potentially, yes. If you meet certain income requirements and use the bond’s proceeds for qualified higher education expenses, you may be able to exclude the interest from your federal taxable income.

How long do Series EE savings bonds earn interest?

Series EE savings bonds earn interest for up to 30 years from their issue date. After 30 years, they stop earning interest and should be redeemed.

What if I can’t find my paper savings bond?

You can try to get a replacement or inquire about its status through the Bureau of the Fiscal Service. You will need to provide as much information as possible about the bond, such as its serial number or issue date.

What this page does NOT cover (and where to go next)

• Specific current interest rates for new savings bonds (check the TreasuryDirect website).
• Detailed tax advice for every individual situation (consult a tax professional).
• Investment strategies involving savings bonds as part of a diversified portfolio (explore investment planning resources).
• Rules for redeeming savings bonds from deceased individuals (research estate settlement guidance).
• International tax implications of savings bonds (consult a tax advisor specializing in international finance).