Savings bonds are simple to own and rock-solid by design, yet redeeming them can feel surprisingly complicated.

U.S. Securities and Exchange Commission notes: "U.S. savings bonds are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government."

The good news: whether your bonds are electronic or paper, the path to cashing out is straightforward once you know the rules on timing, penalties, taxes, and where to go.

Use this step-by-step guide to avoid delays and keep more of your interest.

What Bonds Are

Savings bonds are 30-year loans to the U.S. Treasury. Interest compounds twice a year, and your principal and interest are backed by the full faith and credit of the government. You can redeem after 12 months, but optimal timing depends on your bond type, how long you’ve held it, and whether early-cash penalties apply.

Bond Types

Two series are currently issued. Series I bonds combine a fixed rate with a semiannual inflation adjustment based on the Consumer Price Index. They aim to preserve purchasing power across cycles. Series EE bonds carry a fixed rate and a unique kicker: they’re guaranteed to double in value by year 20, then continue earning interest until year 30.

When To Redeem

The earliest cash-out date is one year after issue. Redeeming before five years triggers a penalty equal to the last three months of interest. After five years, there’s no penalty. Maturity arrives at 30 years; at that point, interest stops accruing, so lingering beyond maturity is simply leaving money idle.

Where To Redeem

The process depends on format. Electronic bonds live in your TreasuryDirect account and are redeemed online with proceeds deposited to your linked bank account. Paper bonds, including many older I or EE bonds and older retired series, are typically cashed at participating banks or credit unions—or by mail if a branch can’t process them.

Online Steps

Log into TreasuryDirect, open ManageDirect, and choose Redeem. Select the security, then decide whether to redeem all or part. Partial redemptions must be at least $25 and leave at least $25 invested. Confirm your destination bank account.

Funds usually arrive within a couple of business days, and a Form 1099-INT will be issued for the interest portion.

Bank Option

For paper bonds, call ahead: some institutions require you to be an account holder, set daily limits, or restrict which series they’ll handle at the teller window. Bring valid ID and expect full redemption—partial cash-outs generally aren’t available on paper.

The bank will submit the transaction and provide tax reporting using Form 1099-INT for the year you redeem.

Mail Option

No nearby branch? Use FS Form 1522 to redeem by mail through TreasuryRetail Securities Services. If the redemption amount exceeds $1,000, your signature must be certified by a qualifying institution or a Treasury-recognized program (e.g., a medallion guarantee).

Once processed, proceeds are sent to your designated bank account, and you’ll receive tax reporting for interest.

Early Penalties

The three-month interest forfeiture applies only if you redeem within the first five years. It’s taken off the payout automatically, so there’s no separate bill. If your bond is close to hitting a full three-month block, consider waiting until that block completes to keep more interest—often just a matter of days or weeks.

Tax Basics

Interest on I and EE bonds is subject to federal income tax but exempt from state and local income taxes. You report the interest in the year you redeem or when the bond matures—unless you’ve elected to report annually.

Beneficiaries may owe tax on interest not included on the decedent’s final return; executors can elect where that interest is reported.

Education Break

The Education Savings Bond Program can reduce or eliminate federal tax on interest if redemption proceeds are used for qualified higher-education expenses in the same year. Eligibility depends on income limits, filing status, and bond ownership details. Keep receipts and confirm rules before cashing so you can document the exclusion properly.

Finding Values

Don’t guess at worth. Use a savings bond calculator (or TreasuryDirect’s tools) with the series, denomination, and issue date to see current value, accrued interest, and next accrual date. For paper bonds, the calculator also helps you spot bonds that have already matured—prime candidates to cash since they’re no longer earning.

Common Snags

Mismatched names, outdated addresses, or lost paper bonds can slow redemptions. Treasury forms can update registrations, change bank instructions, or replace lost or mutilated paper bonds. If your TreasuryDirect login is locked, resolve that first to avoid payment delays.

For estates or trusts, expect to provide supporting documents that prove authority to redeem.

Smart Sequencing

If you own several bonds, redeem in this order: matured first (no interest left), then bonds inside the five-year window that have the smallest penalty, and finally those closest to hitting a new three-month interest block. For I bonds near a rate-reset, revisiting values after the new rate posts can fine-tune timing.

Conclusion

Redeeming savings bonds is mostly about format, timing, and taxes: pick the right channel (online, bank, or mail), avoid the three-month penalty when possible, and plan for federal tax on interest—unless you qualify for the education exclusion.

Which bonds in your drawer or dashboard are ripe to cash next, and what will you put that money to work for?