You can cash I bonds after one year, but you lose the last three months of interest if you cash them before five years

I bonds are savings bonds issued by the U.S. Department of the Treasury. When you want your money back, you redeem them through TreasuryDirect, the official online platform where you bought them. The process takes a few minutes if you have your account set up, but the timing of when you cash them affects how much interest you receive.

You can redeem I bonds one year after purchase. If you cash them before the five-year mark, you lose the last three months of interest as a penalty. After five years, you can cash them without penalty and keep all accrued interest. There is no upper limit on how long you can hold them — they stop earning interest after 30 years.

Key Takeaways

  • I bonds must be held for at least one year before you can redeem them, and cashing them before five years costs you three months of interest.
  • You redeem I bonds through your TreasuryDirect account online; the money arrives in your linked bank account within one to three business days.
  • The redemption value includes the original purchase price plus all interest earned up to the redemption date, minus any early-withdrawal penalty.
  • If you lose access to your TreasuryDirect account, you can request a manual redemption by mail using Form PD F 4000, which takes longer but works if you have your bond serial numbers.

Redeeming I bonds through TreasuryDirect online

Log into your TreasuryDirect account at treasurydirect.gov using your username and password. Navigate to "Manage My Securities" and select the I bonds you want to redeem. You can redeem one bond or multiple bonds in a single transaction. The system will show you the current redemption value, which includes your principal and all interest earned to date, minus any penalty if applicable.

Confirm the redemption and select the bank account where you want the funds deposited. This must be the same account linked to your TreasuryDirect profile. The money typically arrives within one to three business days. You will receive a confirmation number for your records.

TreasuryDirect does not charge a fee to redeem bonds. The redemption is final once you confirm it — you cannot undo the transaction.

Understanding the three-month interest penalty

If you redeem an I bond before it reaches five years old, the Treasury withholds the last three months of interest you earned. For example, if you bought an I bond on January 15, 2023, and redeem it on March 20, 2024 (just over one year), you lose the interest that would have been credited on January 15, 2024. You receive the principal plus interest through October 15, 2023.

The penalty applies regardless of how long you have held the bond, as long as it is less than five years. At the five-year mark, the penalty no longer applies. If you redeem on or after the five-year anniversary of the purchase date, you keep all interest earned.

What happens if you cannot access your TreasuryDirect account

If you forget your password or lose access to your account, you can still redeem your bonds by mail. Request Form PD F 4000 (Request for Redemption of Series I Savings Bonds) from the Bureau of the Fiscal Service. You will need to provide your bond serial numbers, which appear on your bond statement or purchase confirmation.

Mail the completed form and any required documentation to the address listed on the form. Processing takes four to six weeks. This route is slower than online redemption but works if your account is locked or you cannot regain access.

If you have lost your bond serial numbers entirely, contact the Bureau of the Fiscal Service directly at 844-284-2676 or through their website. They can help you locate your bonds using your Social Security number and other identifying information.

Tax reporting when you redeem I bonds

The interest you earn on I bonds is subject to federal income tax. You do not pay tax when you redeem the bond — instead, you report the interest on your tax return for the year you cash it in. TreasuryDirect will send you a Form 1099-INT in January of the following year showing the interest earned.

I bond interest is not subject to state or local income tax. If you bought the bonds to pay for may have access to education expenses, you may be able to exclude some or all of the interest from federal taxation, but you must meet specific requirements and file Form 8815 with your tax return.

Redeeming I bonds held by a minor or deceased owner

If you hold I bonds for a minor in a TreasuryDirect account, you can redeem them as the account owner without the minor's signature. The minor does not need to be present or consent to the redemption.

If the bond owner has died, the person handling the estate can redeem the bonds by submitting a death certificate and proof of authority (such as letters testamentary or a court order) to the Bureau of the Fiscal Service. Contact them at 844-284-2676 to request the specific forms and process for your situation.

Planning your redemption timing

The interest rate on I bonds changes 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 are considering cashing in a bond just before the five-year mark, check the current interest rate first — if rates have dropped significantly, you might want to hold longer.

If you are redeeming before five years, calculate whether the three-month penalty is worth the cost. For example, if your bond is earning 4% annually and you redeem it at 4.5 years, you lose three months of interest. Compare that loss against your need for the cash and what you could earn elsewhere.

Frequently Asked Questions

Can I redeem just part of an I bond?

No. I bonds are redeemed in full only. You cannot cash in a portion of a single bond and keep the rest. If you own multiple bonds, you can choose which ones to redeem and leave others untouched.

What if I redeem my I bond right at the five-year mark?

If you redeem on or after the five-year anniversary of your purchase date, you receive the full redemption value with no penalty. For example, if you bought a bond on June 1, 2019, and redeem it on June 1, 2024, or any date after, you keep all interest earned.

Do I bonds stop earning interest after I redeem them?

Yes. Once you redeem a bond, it stops earning interest immediately. The redemption value you receive includes all interest earned up to the redemption date. After redemption, the bond no longer exists.

How long does it take to get my money after I redeem online?

Most redemptions arrive in your linked bank account within one to three business days. Weekends and federal holidays may delay the deposit. Check your TreasuryDirect confirmation for an estimated arrival date.

What if I need my money before one year has passed?

You cannot redeem I bonds before one year has elapsed. You must wait at least one year from the purchase date. If you need cash sooner, you will need to use a different savings vehicle or source of funds.