How to Cash Out Your U.S. Savings Bonds

Quick answer

• You can cash out Series I Savings Bonds (I Bonds) electronically through TreasuryDirect.gov or by mail.
• I Bonds must be held for at least 12 months before they can be redeemed.
• Redeeming I Bonds before 5 years means forfeiting the last 3 months of interest.
• You’ll need your TreasuryDirect account information or specific forms if redeeming by mail.
• Interest earned on I Bonds is generally tax-deferred until redemption and exempt from state and local income taxes.
• Consult tax documents for reporting requirements when you cash out.

Who this is for

• U.S. citizens or residents who own Series I Savings Bonds.
• Individuals who need access to funds invested in I Bonds for specific financial goals.
• Savers looking to understand the process and implications of redeeming their I Bonds.

What to check first (before you cash out)

Goal and timeline

Before you decide to cash out, clearly define why you need the money and when you need it. Is it for an emergency, a down payment, retirement, or another significant expense? Your timeline will influence whether cashing out now is the best financial move, especially considering potential interest forfeiture.

Current cash flow

Assess your regular income and expenses. Do you have enough stable income to cover your needs without touching your savings bond investments? If your cash flow is tight, cashing out might be necessary but could also impact your future financial stability.

Emergency fund or safety buffer

Do you have a separate emergency fund? Ideally, your emergency fund should cover 3-6 months of living expenses. If you’re tapping into savings bonds because you lack an emergency fund, consider if there are other ways to build that buffer first, or if cashing out is a last resort.

Debt and interest rates

Examine any outstanding debts you have, particularly high-interest ones like credit cards. Compare the interest rate you’re earning on your I Bonds (which is designed to keep pace with inflation) to the interest rate on your debts. If you have high-interest debt, paying it off might be a better financial decision than cashing out I Bonds for a different purpose.

Credit impact

Cashing out savings bonds generally does not directly impact your credit score. However, if the funds are needed to pay off debts that are negatively affecting your credit, then indirectly, managing your debt responsibly can improve your creditworthiness over time.

Step-by-step (simple workflow)

1. Determine if you meet the holding period requirement

• What to do: Check the issue date of your I Bonds. You must hold them for at least 12 months.
• What “good” looks like: The bond’s issue date is more than 12 months in the past.
• A common mistake and how to avoid it: Assuming you can cash out immediately. Always verify the 12-month minimum holding period.

2. Decide if cashing out before 5 years is worth the interest forfeiture

• What to do: If you redeem I Bonds before they are 5 years old, you forfeit the last 3 months of interest. Calculate the interest you’ll lose versus the benefit of accessing the funds.
• What “good” looks like: You’ve calculated the potential interest loss and decided it’s acceptable for your immediate needs.
• A common mistake and how to avoid it: Forgetting about the 3-month interest penalty. Do the math to ensure the funds are worth the cost.

3. Access your TreasuryDirect account (if applicable)

• What to do: Log in to your TreasuryDirect.gov account using your username and password.
• What “good” looks like: You can successfully log in and view your savings bond holdings.
• A common mistake and how to avoid it: Forgetting your login credentials. Use the “Forgot Username” or “Forgot Password” options if needed, but be prepared for identity verification steps.

4. Navigate to the “Redeem Savings Bonds” section

• What to do: Once logged in, find the option to redeem your savings bonds. This is usually a clear link or menu item.
• What “good” looks like: You’ve located the correct section for initiating a redemption.
• A common mistake and how to avoid it: Clicking on the wrong redemption option if multiple types of savings bonds are offered. Ensure you are selecting the option for Series I Savings Bonds.

5. Select the bonds you wish to redeem

• What to do: Choose the specific I Bonds or the amount you want to cash out from your available holdings.
• What “good” looks like: You have clearly identified the bonds and the exact amount you intend to redeem.
• A common mistake and how to avoid it: Accidentally selecting the wrong bond or entering an incorrect redemption amount. Double-check your selection before proceeding.

6. Choose your redemption destination

• What to do: You will typically need to select a bank account to receive the funds via direct deposit.
• What “good” looks like: You have a valid bank account selected for the transfer.
• A common mistake and how to avoid it: Entering incorrect bank account information (routing or account number). Verify these details carefully.

7. Review and submit your redemption request

• What to do: Carefully review all the details of your redemption request, including the amount, destination bank account, and any disclosures.
• What “good” looks like: You have confirmed all information is accurate and submitted the request.
• A common mistake and how to avoid it: Submitting a request with typos in bank details or an incorrect redemption amount. A final review is crucial.

8. If redeeming by mail, gather necessary forms

• What to do: If you don’t have a TreasuryDirect account or prefer to redeem by mail, you’ll need to download and complete the appropriate redemption forms (e.g., FS Form 1522). You can find these on the TreasuryDirect website.
• What “good” looks like: You have the correct form, have filled it out completely and accurately, and have gathered any required supporting documentation (like proof of identity).
• A common mistake and how to avoid it: Using an outdated form or not providing all required information/documentation, which can lead to significant delays or rejection of your request.

9. Submit your redemption request (mail option)

• What to do: Mail your completed forms and any required documentation to the address specified on the form. Consider using certified mail for tracking.
• What “good” looks like: Your request has been mailed securely and you have a tracking number.
• A common mistake and how to avoid it: Not sending it via a trackable method, making it difficult to confirm receipt or if it gets lost.

10. Wait for funds to be deposited

• What to do: Allow several business days for the funds to be electronically transferred to your bank account.
• What “good” looks like: The funds appear in your bank account.
• A common mistake and how to avoid it: Assuming the money will appear instantly. Be patient, as electronic transfers take time.

11. Report interest on your tax return

• What to do: Keep records of your redemption. The interest earned is generally taxable at the federal level in the year of redemption.
• What “good” looks like: You have the necessary information to accurately report the interest income on your federal tax return.
• A common mistake and how to avoid it: Forgetting to report the interest income. This can lead to penalties or interest from the IRS.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Redeeming before 12 months	Your redemption request will be rejected.	Wait until the bond has been held for at least 12 months.
Forfeiting 3 months’ interest unknowingly	You receive less money than you expected due to the penalty.	Calculate the 3-month interest forfeiture if redeeming before 5 years and decide if it’s worth it.
Incorrect TreasuryDirect login	You cannot access your account to initiate the redemption.	Use the “Forgot Username” or “Forgot Password” recovery options, ensuring you have your account details ready.
Typos in bank account or routing numbers	The funds will not be deposited correctly, leading to delays and potential rejection.	Double-check all bank account and routing numbers before submitting the redemption request.
Not having your Social Security Number (SSN)	You cannot complete the redemption process, as it’s a required identifier.	Ensure you have your SSN readily available when initiating the redemption.
Redeeming paper bonds without proper forms	Your redemption request will be denied, and you’ll have to start over.	Download the correct redemption form (e.g., FS Form 1522) from TreasuryDirect.gov and fill it out completely.
Not reporting interest income	You may face penalties and interest from the IRS for underreporting income.	Keep records of your redemptions and report the interest earned on your federal tax return for the year of redemption.
Assuming funds are available instantly	You might make financial commitments based on immediate access to funds that aren’t there yet.	Allow several business days for the direct deposit to clear your bank account.
Not checking the bond’s issue date	You might incorrectly believe a bond is eligible for redemption when it’s not yet 12 months old.	Always verify the exact issue date of the savings bond before attempting to redeem it.
Forgetting about state and local taxes	While I Bond interest is usually exempt, misinterpreting tax rules can lead to unexpected tax liabilities.	Confirm that I Bond interest is exempt from state and local income taxes in your jurisdiction, which is generally true.

Decision rules (simple if/then)

• If you need the money within 12 months of purchase, then you cannot cash out the I Bond because there is a minimum holding period of 12 months.
• If you need the money between 12 months and 5 years of purchase, then you can cash out the I Bond, but you will forfeit the last 3 months of interest because this is a penalty for early redemption.
• If you need the money after 5 years of purchase, then you can cash out the I Bond without any interest forfeiture because the penalty period has passed.
• If you have high-interest debt (e.g., credit cards), then it might be a better financial decision to cash out your I Bonds to pay off that debt because the interest saved on the debt likely outweighs the interest earned on the bond.
• If you do not have an emergency fund, then consider if cashing out your I Bond is a necessity or if you can build a small emergency buffer first, as I Bonds provide a safe haven for savings.
• If you purchased paper I Bonds, then you must redeem them by mail using the appropriate forms because electronic redemption is only available for bonds purchased through TreasuryDirect.
• If you purchased I Bonds electronically through TreasuryDirect, then you can redeem them online through your TreasuryDirect account because this is the most convenient method.
• If you are unsure about the tax implications of cashing out, then consult a tax professional because while I Bond interest is generally tax-deferred and exempt from state/local taxes, specific situations may vary.
• If you need to access the funds immediately due to an unforeseen emergency, then the 3-month interest penalty (if applicable) is likely a necessary cost because financial security takes precedence.
• If you are considering cashing out a significant portion of your savings, then re-evaluate your overall financial plan and emergency savings to ensure you are not jeopardizing your long-term goals because your savings bonds may be earning valuable inflation-adjusted interest.

FAQ

Q1: How long do I have to wait to cash out my I Bonds?

You must hold Series I Savings Bonds for a minimum of 12 months before they can be redeemed.

Q2: What happens if I cash out my I Bonds before 5 years?

If you redeem your I Bonds before they have been held for 5 years, you will forfeit the last 3 months of interest earned.

Q3: Can I cash out I Bonds online?

Yes, if you purchased your I Bonds through TreasuryDirect.gov, you can redeem them electronically via your online account.

Q4: How do I cash out paper I Bonds?

You will need to fill out the appropriate redemption form (e.g., FS Form 1522) and mail it to the U.S. Treasury, along with any required identification.

Q5: Is the interest earned on I Bonds taxable?

Interest earned on I Bonds is tax-deferred until redemption at the federal level and is exempt from state and local income taxes.

Q6: How long does it take to get my money after cashing out?

Electronic redemptions typically take a few business days for the funds to be deposited into your bank account. Mail-in redemptions can take longer.

Q7: What if I can’t remember my TreasuryDirect login details?

TreasuryDirect.gov has options to help you recover your username or reset your password, but you may need to go through identity verification steps.

Q8: Can I redeem only a portion of my I Bonds?

Yes, you can choose to redeem a specific amount or a specific bond from your holdings.

Q9: Will cashing out my I Bonds affect my credit score?

No, cashing out savings bonds does not directly affect your credit score.

Q10: What if I made a mistake on my redemption request?

If you notice an error before submitting, correct it. If you’ve already submitted, contact TreasuryDirect customer service immediately to see if a correction is possible, though it may not be.

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

• Specific tax advice: This page provides general information on tax implications. For personalized advice, consult a qualified tax professional.
• Redeeming bonds for someone else: This guide focuses on self-redemption. Rules for redeeming bonds on behalf of a minor or deceased individual have specific procedures.
• Other U.S. Savings Bond Series: This guide specifically addresses Series I Bonds. Other series (like Series EE) have different redemption rules.
• Investment strategies: This page explains how to cash out savings bonds, not whether it’s the best investment decision for your portfolio. Consider consulting a financial advisor for investment planning.
• International tax implications: This guide is for U.S. taxpayers. If you are a non-U.S. resident or citizen, tax rules will differ significantly.