You can cash in I bonds at your bank or through TreasuryDirect, but the timing and penalties matter

To cash in an I bond, you go to the financial institution where you hold it — either a bank or brokerage — or you log into your TreasuryDirect account online if you bought it directly from the U.S. Treasury. The process itself takes minutes, but the redemption rules determine whether you get the full value or lose some interest. I bonds held for less than five years carry a penalty: you forfeit the last three months of interest. After five years, you cash them in with no penalty and receive the full face value plus all accrued interest.

The money typically arrives in your bank account within a few business days. If you hold the bond in a brokerage account, the proceeds go to your cash balance there. The timing of when you redeem matters because interest is paid in six-month intervals, and you only lose the last three months if you sell before the five-year mark — so redeeming right after an interest payment is better than redeeming right before one.

Key Takeaways

  • I bonds held for less than five years lose the last three months of accrued interest when redeemed, but bonds held five years or longer cash in at full value with no penalty.
  • You redeem through your bank, brokerage, or TreasuryDirect account depending on where you purchased the bond.
  • Interest on I bonds is paid every six months, so the timing of your redemption affects how much interest you actually receive.
  • Redemption proceeds arrive in your linked bank account or brokerage cash balance within a few business days.

Redeeming through TreasuryDirect

If you bought your I bonds directly from the Treasury through TreasuryDirect, you log into your account at treasurydirect.gov using your username and password. Navigate to the "Manage My Securities" section and select the bond you want to redeem. You will see the current value, the interest earned to date, and any penalty that applies if you cash in before five years.

Once you confirm the redemption, the Treasury processes it and deposits the money into the bank account you have linked to your TreasuryDirect account. This usually takes three to five business days. You cannot redeem a TreasuryDirect I bond through a bank or broker — you must use the TreasuryDirect website.

Cashing in bonds held at a bank or brokerage

If you own I bonds purchased through a bank, credit union, or brokerage firm, contact that institution directly to redeem them. You may be able to do this online through your account portal, by phone, or in person at a branch. The process varies by institution, so call ahead or check their website for the specific steps.

The institution will verify you own the bond, confirm the redemption value (including any early-redemption penalty), and process the payment. The money goes into your account at that bank or brokerage, not directly to your personal bank account. If you want the cash in a different account, you will need to transfer it yourself after redemption.

Understanding the five-year holding period and interest penalty

The five-year rule is the key to avoiding a loss. If you redeem an I bond before it has been held for five years, you forfeit the last three months of interest. This is not a fee — it is a reduction in the interest you receive. For example, if your bond earned $100 in interest but you redeem it after three years, you lose $25 (three months of the interest) and receive $75.

After five years, there is no penalty. You receive the full face value of the bond plus every dollar of interest earned, no matter when you redeem it. This is why many people hold I bonds for at least five years: the penalty disappears entirely, and you keep all your earnings.

Interest accrues every six months, on the first day of May and November. If you redeem shortly after one of these dates, you capture the most recent interest payment. If you redeem just before one, you miss it. Timing your redemption around these dates can affect your total return, especially if you are close to the five-year mark.

What happens to your money after redemption

Once redeemed, the bond no longer exists. You receive the cash value, and that is the end of it — the bond stops earning interest the moment you redeem it. The money is yours to use, save, or reinvest as you choose. There is no tax withholding at the time of redemption, but the interest you earned is subject to federal income tax in the year you redeem the bond.

If you redeemed the bond in 2024, you will report the interest earned on your 2024 tax return. The Treasury does not send you a 1099-INT automatically for I bonds; you track the interest yourself using the redemption statement you receive. Keep that statement for your records.

Redeeming I bonds before five years: when it makes sense

The three-month interest penalty is steep, but there are situations where redeeming early is still the right choice. If you need the money for an emergency and the I bond is your only available source, the penalty is worth paying to avoid debt. If interest rates have risen significantly and you can earn much more elsewhere, the penalty may be smaller than the opportunity cost of keeping your money locked in a low-rate bond.

Calculate the actual dollar amount of the penalty before you decide. If your bond has earned $50 in interest and you redeem it at year three, you lose $12.50. If you need that money and have no other option, $12.50 is a small price. But if you are redeeming to move the money to a savings account earning slightly more, the penalty might outweigh the gain.

Frequently Asked Questions

Can I redeem an I bond partially, or do I have to cash in the whole thing?

You must redeem the entire bond. You cannot cash in half of it and keep the other half earning interest. If you want to keep some money in I bonds, you need to buy a separate bond.

What if I lost the bond certificate or my TreasuryDirect login?

If you hold a paper I bond certificate, contact the Treasury's Bureau of the Fiscal Service at 844-284-2676 or visit treasurydirect.gov for replacement instructions. If you forgot your TreasuryDirect password, use the "Forgot Password" link on the login page to reset it.

Do I pay taxes on the interest when I redeem the bond?

You do not pay taxes at the time of redemption, but the interest is taxable income in the year you redeem the bond. You report it on your federal tax return. Some states do not tax Treasury bond interest, so check your state's rules.

Can someone else redeem my I bond if I give them permission?

No. Only the registered owner can redeem an I bond. If the bond is in a minor's name, the parent or guardian must redeem it on their behalf through TreasuryDirect or the institution where it is held.

What if the bond has matured and stopped earning interest?

I bonds stop earning interest after 30 years. At that point, you should redeem them because they are no longer growing. The redemption process is the same, and there is no penalty because the five-year rule no longer applies.