Investing in US savings bonds has long been considered a hallmark of prudent financial planning. Known for their safety and favorable tax treatment, these bonds are popular for individuals looking to secure their financial future. But as with any investment, there comes a time when you might need, or want, to convert those bonds back into liquid cash. You may be eyeing a major purchase, addressing a financial emergency, or taking advantage of the bond’s maturity. Whatever the reason, understanding how to cash paper savings bonds is an essential skill for bondholders. This comprehensive guide will explore the ins and outs of cashing in your paper savings bonds.
What Are Savings Bonds?
Savings bonds, or debt securities, are issued by the US Department of the Treasury to support the government’s borrowing needs. By purchasing a savings bond, you’re lending money to the government, which promises to pay back the original investment plus interest. The main types of savings bonds available are Series EE and Series I, with EE bonds offering a fixed interest rate and I bonds adjusting rates based on inflation.
Paper savings bonds can be more cumbersome than their electronic counterparts, especially since your tax refund is the only way to purchase a new Series I paper bond. Nevertheless, they remain a valuable part of many investment portfolios.
When to Cash in Your Savings Bond
Deciding the right time to cash your savings bonds can take time and effort. Factors to consider include the bond’s maturity date, current financial needs, or seeking higher investment returns. Cashing in your bond before five years results in losing the last three months of interest, which might influence your decision.
How to Cash Paper Savings Bonds
Checking the Maturity Date
Your first step should be to check your bond’s maturity date to ensure it’s eligible for cashing. This date, set 30 years from the purchase date for both Series EE and Series I bonds, determines when the bond stops earning interest.
Gather Required Documentation
Depending on the bond amount, cashing in might require different identification or forms. You’ll need your signature certified for paper savings bonds over $1,000, whereas electronic bonds can be managed directly through your TreasuryDirect account.
Where to Cash the Savings Bond
You have a couple of options for paper savings bonds: mailing them to the Treasury Retail Securities Services with the required forms or visiting your local bank or credit union. The latter might be more convenient, but it’s always best to call ahead and confirm the institution’s policies on cashing savings bonds.
Completing the Redemption Process
The process for electronic bonds is straightforward and can be completed online through your TreasuryDirect account. Paper bonds, however, require you to mail the bonds with the completed FS Form 1522 or cash them at your bank. Remember, the entire value of the paper bond must be redeemed at once.
Finding Out How Much Your Savings Bond is Worth
Before cashing in, you’ll want to know the current value of your bond. This can be done through your TreasuryDirect account for electronic bonds or the TreasuryDirect calculator for paper bonds.
Options for Receiving Payment
Whether you’re cashing electronic or paper savings bonds, you’ll have options for receiving your money. Electronic redemptions can be partially or fully deposited directly into a bank account or a Zero-Percent Certificate of Indebtedness. On the other hand, paper bonds will be fully cashed, with the proceeds going to a designated bank account or given as cash at a bank.
Tax Considerations When Cashing Savings Bonds
An essential aspect of cashing your savings bonds is understanding the tax implications. Interest earned on savings bonds is subject to federal income tax but not state or local tax. You’ll need to decide whether to report the interest earned annually or when cashing the bond. Additionally, using savings bonds for qualified educational expenses might exempt you from paying taxes on the interest.
The Bottom Line
Knowing how to cash paper savings bonds is crucial for making informed decisions about your investment. Whether you’re using the funds to pay off debt, make a significant purchase, or because your bond has matured, understanding the process ensures you can access your money when needed. With this guide, you can navigate the steps from checking your bond’s maturity to receiving your payment.