You might've received a savings bond as a gift years ago, and now it's filed away, neatly pressed at the bottom of a shoebox on a shelf in your closet. As spring cleaning time approaches, consider slipping it out and giving it a look.
Savings bonds -- which come in three varieties -- can be a good way to get some cash, especially if the bond has matured. Here's what you need to know about savings bonds and how to redeem them.
What is a savings bond?
A savings bond is a lower-risk investment. You agree to give the US Treasury and government money with the understanding that it'll be paid back to you over a set period of time, with interest. Most bond types mature -- or stop earning interest -- after 30 years past their issue date. That's the best time to redeem them.
Savings bonds are a lower-risk investment than stocks, for example, because their terms are fixed and they're backed by the US government.
Savings bonds can come in paper form or digital only, depending on when they were issued. If you were gifted a bond years ago, chances are it's a paper certificate. Newer bonds are generally issued digitally, and you're able to view them online via your Treasury Department account.
It's worth noting that while the cash you get in exchange for a bond isn't taxable by the state, the interest you earn is considered federally taxable income, which means you'll need to report it when tax season rears its head.
Types of savings bonds
There are three primary types of bonds, Series E, Series EE and Series I.
- Series E: No longer issued. They have a 40-year maximum if issued before November 1965, and a 30-year maximum if issued after.
- Series EE: These replaced E bonds. If issued after May 2005, the bonds earn a fixed interest rate. If they were issued before, they’ll accrue interest at a variable rate. Series EE bonds have a 30-year maximum.
- Series I: These bonds were designed to protect against inflation, something that's particularly valuable now considering how high inflation has been over the past few years. Series I bonds feature a combined fixed interest rate and a semiannual inflation rate based on the Consumer Price Index.
There's also a Series HH bond, but they were issued between 1980 and 2004 and are no longer issued.
How to redeem savings bonds
No matter which type of bond you have, they can all be redeemed or cashed in through the US Treasury Department or with a bank you have a relationship with. Some banks may require you to have an account with it for a specific amount of time before you can redeem bonds. Certain banks may not offer the service at all, like Capital One.
You can also redeem bonds through the Treasury Department by filling out Form 1522 and having your signature certified if the bond is worth more than $1,000. Mail it to:
Treasury Retail Securities Services
P.O. Box 214
Minneapolis, MN 55480-0214
You can have the funds deposited directly into your bank account. If you have an online bond, you're able to redeem it through your TreasuryDirect account. Just go to your account page, choose ManageDirect and follow the redemption link.
If you have any questions, talk to your bank. The people there can help you with any questions and set you on the right track toward redeeming your bond.
Questions to consider before redeeming
If you need immediate cash, redeeming a savings bond could help. However, there are a few things you should consider before cashing in your bond.
- Has it reached maturity? When a bond reaches maturity, it means it no longer is accruing interest and has reached its maximum value. If you redeem the bond early, you'll miss out on potential funds.
- How long have you had the bond? You have to hold a bond for at least one year before you redeem it. And be aware, if you redeem a Series EE or I bond within five years of its issue date, you'll forfeit the last three months of interest.
- How much is your bond worth? The longer you hold the bond, the more it'll be worth. Depending on its interest rate, it may be better to hold off.
While checking the value of your digital bond is as easy as checking your TreasuryDirect account, you can check how much your paper bond is worth just as easily.Â
The Treasury Department offers a paper bond value calculator for you to use. You'll need your bond denomination, serial number and issue date.
The bottom line
Savings bonds are a good, low-risk investment. If you’ve had a bond for many years, consider checking its value or seeing if it’s matured. You might be able to redeem it either with the Treasury Department or your bank for a nice payout. If the bond hasn’t matured, consider forgetting about it again until it reaches its peak value.
FAQs
You can purchase a Series EE or Series I bond online via the Treasury Department. Create a TreasuryDirect account and follow prompts to purchase a bond.
While both types of bonds could offer a good value, the Series I bond offers a hedge against inflation. Considering how high the federal interest rate is, the Series I bond will carry a higher interest rate than a Series EE bond.
The best time to redeem a bond is once it’s matured, which means it’s no longer accruing interest and has reached its maximum value.
