Savings Bonds: How They Work and How to Cash Them In

Key points:

• U.S. savings bonds pay you interest semiannually, or every six months.
• You buy and sell them via the government’s TreasuryDirect website, but you can also redeem old paper bond certificates by mail or at some banks.
• They’re low risk because the U.S. government guarantees them, and they come with some tax benefits.
• You can hold them from one year up to 30 years, in any amount from $25 to $10,000 per bond.

What is a savings bond?

Bonds are like an IOU, where a government or company borrows money from the public. The bond issuer, or borrower, promises to repay the loan with interest by a set date.

A U.S. savings bond is issued by the federal government, making the risk much lower than with a corporate bond, where the issuer could go bankrupt and default on its debts.

Earnings on your savings bonds are exempt from state and local income tax, as well as federal gift or estate taxes, but you’ll still have to pay federal income tax on the interest you get.

How do savings bonds work?

You can only buy U.S. savings bonds online at the TreasuryDirect website. The government stopped selling paper bonds in 2024, although you can still redeem them.

U.S. savings bonds earn interest for 30 years, although you don’t get the money until you cash in the bond. The interest racks up every month, and it is “compounded” twice a year. Through compounding, the interest you’ve already earned is added to your balance to give you a new, higher interest payment every six months.

You can buy a bond for yourself or for someone else as a gift, but once you make the purchase, you can't transfer it to a different owner. Each bond is identified with its owner’s tax ID number, a bond serial number and the issue date.

You’re allowed to buy up to $10,000 per year for each of the two types of savings bonds (Series EE bonds and Series I). But because each person has their own per-bond limit, you could still buy $10,000 worth of each type for yourself, your spouse and your children.

What are the types of savings bonds?

The Treasury issues two types of savings bonds: Series EE bonds and Series I bonds.

The Treasury used to have another type of savings bond called Series HH, but it was discontinued in 2004. No Series HH bonds are still earning interest, so you should probably sell them if you have them and invest in something else.

What are the ways to cash in savings bonds?

The general rules for redeeming a savings bond are:

• You have to wait at least a year after buying it.
• If you cash it in during the first five years, you give up the last three months’ worth of interest as a penalty.
• You can cash in your bond anytime after five years with no penalty.

With TreasuryDirect, you can also cash in just part of an electronic savings bond because it acts like an account rather than a single bond. However, you must withdraw at least $25, and there must still be at least $25 left in the TreasuryDirect account.

If you have an old paper U.S. savings bond, you must cash in the whole bond.

When you redeem a savings bond, you’ll collect the face value plus your accumulated interest. You will also get a Form 1099-INT to use in reporting the interest income on your federal tax return.

Where can you cash in savings bonds?

With TreasuryDirect, you cash in your bond through the website, and your money will be directly deposited into your bank account.

If you have old paper U.S. savings bonds, then you have two redemption options:

1. In person: A bank or credit union near you may offer bond redemption services. You may need to have an account and show multiple forms of government-issued ID.
2. By mail: If the bond’s redemption value is less than $1,000, you can mail the bond itself with a photocopy of your ID to TreasuryDirect with a completed Form 1522 (available on the website). You can redeem up to 30 bonds at once. The money will be directly deposited into your bank account.

If the redemption value is $1,000 or more, you may still redeem by mail, but your Form 1522 will need to be notarized.

When should you cash in a savings bond?

Ask yourself two questions before you cash in a savings bond:

• Do you have an important and urgent need for the money?
• Do you have a better investment opportunity available?

If you need the money immediately because of a declared natural disaster, you may be exempt from the “no withdrawal first year” rule.

Also, if you’re using the money to pay for higher education for yourself or a family member, then you usually won’t have to pay federal income taxes on your interest.

Note that if the bond is old and has stopped paying interest, then there’s probably no reason to keep it. You could easily cash it in and invest the funds in a new U.S. savings bond.

How much is your savings bond worth?

If you have a TreasuryDirect account, you can check your bond’s total value in your online account anytime.

If you have paper bonds, you can use TreasuryDirect’s free savings bond value calculator to find their current value. You will need to know the denomination (face value) and issue date of each bond.

Pros and cons of savings bonds

Will you have to pay taxes on your savings bond?

Savings bonds come with several features that limit the taxes you have to pay.

• Interest is always exempt from state and local income tax.
• Interest is exempt from federal gift tax and estate tax.
• Federal income tax doesn’t have to be paid until the bond is redeemed, though you can also withhold tax as you earn the interest.
• If the redemption is used to pay higher-education expenses, it may be all or partially exempt from federal tax, depending on your age, income bracket, school and other factors.