When should I cash out my bonds?
It's possible to redeem a savings bond as soon as one year after it's purchased, but it's usually wise to wait at least five years so you don't lose the last three months of interest when you cash it in.
You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
If you want to hold on to your I Bond as just a short term investment then you should consider cashing out at the 12-month mark, or perhaps the 15-month mark. Your November 2022 – April 2023 I Bond purchase will earn 6.89% over the first 6 months.
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent. Only certain qualified higher education costs are covered, including: Tuition.
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|---|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
After 20 years, the Patriot Bond is guaranteed to be worth at least face value. So a $50 Patriot Bond, which was bought for $25, will be worth at least $50 after 20 years. It can continue to accrue interest for as many as 10 more years after that.
After the one-year mark, you can go ahead and cash in your bond, but you will get hit with a penalty of three months' interest earned on the bond. There is no penalty if you simply hold onto the bond after five years. There is value in holding onto most bonds.
The only option for cashing electronic savings bonds is by logging in to your TreasuryDirect account online. If you have paper savings bonds, you can fill out the appropriate form and mail it and the bonds you want to cash to the Treasury Retail Securities Services — the address is listed on FS Form 1522.
You can cash paper bonds at a bank or through the U.S. Department of the Treasury's TreasuryDirect website. Not all banks offer the service, and many only provide it if you are an account holder, according to a NerdWallet analysis of the 20 largest U.S. banks.
The composite rate for I bonds issued from November 2023 through April 2024 is 5.27%.
How much tax do you pay when cashing savings bonds?
The rate you'll pay on bond interest is the same rate you pay on your ordinary income, such as wages or income from self-employment. If, for example, you're in the 37% tax bracket, you'll pay a 37% federal income tax rate on your bond interest.
In general, you must report the interest in income in the taxable year in which you redeemed the bonds to the extent you did not include the interest in income in a prior taxable year.
They are still taxable. The interest income of the savings bond will be taxed to the bond's owner—i.e., the recipient of the gift—when the bond matures and is redeemed for cash (or the owner will be taxed each year if they elect to report the interest income annually).
While the Treasury will not penalize you for holding a U.S. Savings Bond past its date of maturity, the Internal Revenue Service will. Interest accumulated over the life of a U.S. Savings Bond must be reported on your 1040 form for the tax year in which you redeem the bond or it reaches final maturity.
EE bonds you buy now have a fixed interest rate that you know when you buy the bond. That rate remains the same for at least the first 20 years. It may change after that for the last 10 of its 30 years. We guarantee that the value of your new EE bond at 20 years will be double what you paid for it.
| Total Price | Total Value | YTD Interest |
|---|---|---|
| $50.00 | $69.94 | $3.08 |
Government debt and the 10-year Treasury note, in particular, are considered among the safest investments. Its price often (but not always) moves inversely to the trend of the major stock market indexes. Central banks tend to lower interest rates in a recession, which reduces the coupon rate on new Treasurys.
All Series EE Bonds reach final maturity 30 years from issue.
Series EE savings bonds are a low-risk way to save money. They earn interest regularly for 30 years (or until you cash them if you do that before 30 years). For EE bonds you buy now, we guarantee that the bond will double in value in 20 years, even if we have to add money at 20 years to make that happen.
Banks and credit unions can redeem savings bonds over the counter.
Which is better EE or I savings bonds?
Bottom line. I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.
Citing potential fraud, banks are making it increasingly difficult to pay out savings bonds. An unlikely beneficiary is the federal government.
Cash – including high-yield savings accounts, short CDs – money market funds, and bond funds, are all perceived as relatively “safe” investments but differ in terms of their risk level and return potential. Cash is the least risky of the three but offers the lowest potential return.
I bonds issued from Nov. 1, 2023, to April 30, 2024, have a composite rate of 5.27%. That includes a 1.30% fixed rate and a 1.97% inflation rate. Because I bonds are fully backed by the U.S. government, they are considered a relatively safe investment.
The cons of investing in I-bonds
There's actually a limit on how much you can invest in I-bonds per year. The annual maximum in purchases is $10,000 worth of electronic I-bonds, although in some cases, you may be able to purchase an additional $5,000 worth of paper I-bonds using your tax refund.
