You can cash an I Bond after holding it for one year, but you'll lose the last three months of interest if you cash it before five years

To cash an I Bond, you contact the bank or financial institution where you hold it and request redemption. The process is straightforward for most people: you provide proof of ownership, sign the bond over, and the issuer sends you a check or deposits the money into your account. The timing and method depend on whether you bought the bond in paper form or electronic form through TreasuryDirect.

The catch is the penalty for early withdrawal. You can redeem an I Bond anytime after one year of ownership, but if you cash it before five years have passed, you lose the last three months of interest you've earned. This means if you've held the bond for two years and earned $100 in interest, you'd only receive $75 of that interest when you cash it in. After five years, you can redeem without losing any interest.

Key Takeaways

  • Paper I Bonds are redeemed at the bank where you hold them, while electronic I Bonds are redeemed through your TreasuryDirect account online.
  • You must wait at least one year before cashing an I Bond, and you lose three months of interest if you redeem before five years have passed.
  • The redemption process takes a few business days for electronic bonds and varies by bank for paper bonds.
  • You'll receive a 1099-INT form from the issuer reporting the interest you earned, which you must include on your tax return.

Redeeming an electronic I Bond through TreasuryDirect

If you bought your I Bond through TreasuryDirect (the U.S. Treasury's online platform), you redeem it entirely online. Log into your TreasuryDirect account, navigate to the "Manage Securities" section, and select the bond you want to cash. The system will show you the current value, including all interest earned to date, and will calculate what you'll receive after the three-month interest penalty if applicable.

After you confirm the redemption request, the money typically arrives in your linked bank account within three to five business days. TreasuryDirect deposits the full redemption value—principal plus interest minus any penalty—directly to the checking or savings account you registered with your TreasuryDirect account. You don't receive a physical check unless you request one, which takes longer.

Redeeming a paper I Bond at a bank

Paper I Bonds are physical certificates, so you redeem them in person or by mail at a bank. You'll need to bring the bond certificate itself, a form of identification, and proof that you're the registered owner. Some banks require you to fill out a redemption form; others handle it at the teller window.

The process varies by bank. Some will cash the bond immediately and give you a check on the spot. Others may take a few business days to process the redemption and mail you a check. Call your bank ahead of time to ask what documents they need and whether they charge a fee for the service—most don't, but it's worth confirming. If your bank won't redeem paper savings bonds, the U.S. Treasury maintains a list of banks that do.

What happens to the interest you've earned

When you redeem an I Bond, you receive the full principal amount you paid plus all interest earned, minus the three-month penalty if you're cashing it before five years. The interest is taxable income in the year you redeem the bond, even though you didn't receive it until redemption.

The issuer—either TreasuryDirect or your bank—will send you a 1099-INT form showing the total interest you earned. You report this on your federal tax return as interest income. If you're redeeming multiple bonds or have other interest income, all of it goes on the same line of your return. You don't pay tax on the principal itself, only on the interest.

The three-month interest penalty explained

The penalty for redeeming before five years is always three months of interest, regardless of how long you've held the bond. If you've owned the bond for 18 months and earned $60 in interest, the penalty is three months of that interest—roughly $15 to $20, depending on the exact accrual. If you've owned it for four years and nine months and earned $200, you still lose only three months of interest, not more.

This penalty exists to discourage people from treating I Bonds like regular savings accounts. The Treasury wants you to commit to holding the bond for at least five years. After five years, there's no penalty—you can redeem anytime and keep every dollar of interest you've earned. Many people hold I Bonds well beyond five years because the interest rate adjusts every six months and can be attractive compared to other savings options.

Timing your redemption around interest rate changes

I Bond interest rates change every six months, on May 1 and November 1. The rate you earn depends on when you bought the bond and when you redeem it. If you're thinking about cashing in a bond, check the current rate and the next scheduled rate change. If rates are about to drop, you might want to redeem before the change takes effect. If rates are about to rise, you might want to hold the bond a bit longer.

The Treasury announces new rates a few weeks before they take effect, so you'll have time to plan. Keep in mind that if you're within five years of purchase, the three-month interest penalty still applies no matter what the rates are doing. The penalty is fixed; only the interest amount changes based on the rate.

What to do if you've lost your paper bond certificate

If you own a paper I Bond but can't find the certificate, you can still redeem it. Contact the U.S. Treasury's Bureau of the Fiscal Service directly. You'll need to provide proof of ownership—typically your purchase records or tax documents showing you bought the bond—and proof of identity. The Treasury can issue a replacement certificate or process the redemption without the physical bond in hand.

The process takes longer than a standard redemption because the Treasury has to verify your ownership before releasing the funds. Expect several weeks for this to be resolved. If you own electronic bonds through TreasuryDirect, this isn't an issue because the bonds exist only in your online account, not as physical certificates.

Frequently Asked Questions

Can I cash an I Bond before one year?

No. I Bonds have a one-year holding period. You cannot redeem them before 12 months have passed from the purchase date, even in an emergency. After one year, you can redeem anytime, but you'll lose three months of interest if you do so before five years.

What if I need the money but the bond isn't five years old yet?

You can still redeem it after one year—you'll just lose three months of interest. Calculate whether the interest penalty is worth the cost of waiting. If you've held the bond for four years and nine months, the penalty is small. If you've held it for one year, the penalty is larger relative to the interest earned.

Do I have to pay taxes on the interest when I redeem?

Yes. The interest is taxable income in the year you redeem the bond. You'll receive a 1099-INT form showing the amount, and you report it on your federal tax return. Some states also tax I Bond interest, so check your state's rules.

Can someone else cash my I Bond if I'm listed as the owner?

No. Only the registered owner can redeem the bond. If the bond is registered in your name, only you can cash it. If it's registered in a child's name, only that child can redeem it, even if you purchased it. If you're the parent and want to access the money, the child must be present to sign the redemption form.

What's the difference between redeeming and cashing?

They mean the same thing. "Redeeming" and "cashing" an I Bond both refer to turning it in for its current value. The terms are used interchangeably by banks and the Treasury.