Decide based on your current need and the bond's maturity

What you do with a savings bond depends on whether you need the money now, when the bond matures, and what interest rate it currently earns. You have three main paths: hold it until final maturity (when the Treasury stops paying interest), cash it in early, or transfer it to someone else. Each choice has different timing, tax consequences, and penalties.

Before you act, find out which type of bond you own — Series EE, Series I, or an older series — because the rules differ. You can check this in TreasuryDirect, the government's bond management system, or on the physical bond itself if you have a paper certificate. The bond's issue date and series letter tell you how long it will earn interest and what early redemption rules apply.

Key Takeaways

  • Series EE bonds stop earning interest after 30 years, and Series I bonds after 30 years as well, so holding past final maturity means you stop gaining value.
  • You can redeem most bonds after one year, but redeeming before five years means losing the last three months of interest as a penalty.
  • Cashing in a bond triggers federal income tax on all the interest you earned, which you can report in the year you redeem it or the year it matures.
  • You can transfer ownership of a bond to a family member or beneficiary through TreasuryDirect or by submitting a form to the Treasury if you own a paper bond.
  • If you want to use bond interest for education expenses, you may defer federal taxes on that interest under specific conditions.

Hold the bond until it reaches final maturity

Holding a bond to final maturity is the simplest option if you do not need the money before then. Series EE bonds earn interest for 30 years from the issue date. Series I bonds also earn interest for 30 years. Once a bond reaches final maturity, the Treasury stops crediting interest, and the bond no longer grows in value — so keeping it in a drawer after that point gains you nothing.

You do not have to do anything to hold a bond to maturity. If it is registered in TreasuryDirect, it stays there earning interest automatically. If you own a paper bond, store it safely and check on it occasionally to confirm it has not been lost or damaged. When the bond reaches final maturity, you will receive a notice from the Treasury (if it is in TreasuryDirect) or you can contact them to redeem it.

The advantage of holding to maturity is that you avoid the early redemption penalty and you know exactly when your money will be available. The disadvantage is that your money is locked in at a fixed rate, and if inflation rises significantly or interest rates elsewhere become much higher, you cannot access that principal to move it to a better-earning option.

Redeem early and understand the penalty

You can redeem a savings bond before it matures, but the timing and the penalty matter. Most bonds can be redeemed after one year from the issue date. If you redeem before five years have passed, you lose the last three months of interest as a penalty. This means if you bought a bond in January 2023 and redeem it in March 2024 (14 months later), you forfeit the interest you would have earned in December 2023, November 2023, and October 2023.

To redeem a bond in TreasuryDirect, log in, select the bond, and request the redemption. The money arrives in your linked bank account within a few business days. If you own a paper bond, you will need to take it to a bank or credit union that handles bond redemptions, or mail it to the Treasury with a form. Call the Treasury at 1-800-553-2663 to find out which banks in your area still redeem paper bonds, as fewer do each year.

Early redemption makes sense if you need the money for an emergency, have found a higher-yielding savings option, or want to reposition your savings. It does not make sense if you are only a few months away from the five-year mark, because waiting out those months costs you nothing and saves you the three-month penalty.

Transfer or name a beneficiary

You can transfer a bond to another person or name someone to inherit it if you die. In TreasuryDirect, you can change the registered owner or add a beneficiary through your account settings. If you own a paper bond, you will need to submit a form to the Treasury — the specific form depends on whether you are transferring ownership or naming a beneficiary, so contact the Treasury to request the right one.

Transferring ownership means the new owner becomes the legal holder and can redeem or manage the bond. Naming a beneficiary means the bond stays in your name during your life, but passes to that person automatically if you die, without going through probate. A beneficiary cannot touch the bond while you are alive.

Transferring a bond to a minor or to someone else for a gift is common, but be aware that if the bond is in a child's name, the interest income may be taxable to that child when the bond is redeemed. If you are considering a bond as a gift, talk to a tax professional about whether the child's tax bracket makes this strategy worthwhile.

Report the interest income when you redeem

When you redeem a savings bond, you owe federal income tax on all the interest it earned from the issue date to the redemption date. You do not owe tax on the principal — only on the earnings. You report this on your federal tax return in the year you redeem the bond, or you can choose to report it in the year the bond reaches final maturity instead, even if you redeemed it earlier.

The Treasury does not send you a 1099 form for savings bonds the way it does for other investments. Instead, you keep your own records of what you paid for the bond and what you received when you redeemed it. The difference is the taxable interest. If you redeemed multiple bonds in the same year, add up all the interest and report the total.

You do not owe state or local income tax on savings bond interest — only federal tax. This is one reason some people prefer bonds to other savings vehicles. If you are in a high tax bracket, you may want to spread redemptions across multiple years to keep each year's income lower, or redeem bonds in a year when your income is lower for other reasons.

Use the education tax exclusion if you meet the rules

If you redeem a Series EE or Series I bond and use the money to pay for may have access to education expenses in the same year, you may be able to exclude the interest from federal income tax. may have access to expenses include tuition and fees at an accredited college, university, or vocational school, as well as contributions to a 529 plan or Coverdell education savings account.

To use this exclusion, you must have been at least 24 years old when you bought the bond, the bond must be in your name (not your child's), and you must have redeemed it in the same tax year you paid the education expenses. The exclusion phases out if your income exceeds certain limits, which change each year. For 2024, the phase-out begins at $87,750 for single filers and $131,250 for married filing jointly, but these numbers increase annually.

This exclusion is worth exploring if you are paying for your own education or your spouse's education, but it does not apply if the bond is in your child's name or if you are paying for a dependent's education. You will need to keep records of the bond's purchase date, redemption amount, and the education expenses you paid.

Consider the opportunity cost of holding low-rate bonds

Older Series EE bonds issued before May 2003 earn a may provide minimum rate of 4 percent per year, which is higher than newer ones. Bonds issued after May 2003 earn a much lower rate — currently around 2.5 percent for Series EE bonds issued in recent months. Series I bonds adjust every six months based on inflation, so their rate changes, but they have earned between 4 and 5.27 percent in recent years depending on the period.

If you own a low-rate Series EE bond from recent years and you do not need the money for several more years, compare the bond's current rate to what you could earn in a high-yield savings account or a certificate of deposit. Many high-yield savings accounts now pay 4 to 5 percent, which is higher than a new Series EE bond. If the comparison shows you would earn significantly more elsewhere, redeeming early and moving the money may be worth the three-month interest penalty, especially if you are past the five-year mark and avoid the penalty entirely.

Frequently Asked Questions

What happens if I lose a paper savings bond?

Contact the Treasury immediately with the bond's series, denomination, and issue date if you have that information. The Treasury can research whether the bond has been cashed and may be able to replace it or stop payment if someone else tries to redeem it. You will need to file a claim and provide proof of ownership, such as a purchase receipt or bank statement showing the purchase.

Can I redeem a bond at any bank?

No. Fewer banks redeem paper bonds now than in the past. Call the Treasury at 1-800-553-2663 to find banks in your area that still handle redemptions. If no banks near you do, you can mail the bond to the Treasury with a redemption form. Bonds in TreasuryDirect can be redeemed online without visiting a bank.

Do I have to redeem all of a bond or can I cash in part of it?

You must redeem the entire bond. You cannot split a bond or redeem a portion of it. If you own a $10,000 bond and need $5,000, you will have to redeem the whole bond and reinvest the portion you do not need elsewhere.

What if I want to move my bond to someone else's TreasuryDirect account?

You cannot transfer a bond between TreasuryDirect accounts directly. You must redeem it in your account and have the new owner purchase a new bond with the proceeds, or you can change the registered owner through TreasuryDirect, which removes it from your account and places it in theirs.

How do I know if my bond has reached final maturity?

Check TreasuryDirect, which shows the maturity date for each bond you own. If you have a paper bond, calculate 30 years from the issue date printed on the bond. Once a bond reaches final maturity, it stops earning interest, so you should redeem it and move the money to an account that continues to earn returns.