How To Cash in Savings Bonds and When To Do It

Understanding EE Bonds

EE bonds pay a fixed rate of interest over their 30-year term, making them very easy to understand. The interest on series EE savings bonds is paid monthly and compounded twice per year. They are exempt from state and local income taxes, making them a great choice for investors who live in cities and states with high income taxes.

The interest rate for an EE savings bond is set at issue, and after 20 years the Treasury guarantees that the value of your bond value will have doubled. This means that a $25 dollar bond will be worth $50 after 20 years—equaling an average annual interest rate of 3.527%. If the bond is redeemed before 20 years, the owner will receive the interest rate payments set at purchase, which may be greater than or less than 3.527% annually.

Here’s an important feature to remember about Series EE bonds: They cannot be redeemed within the first year of ownership. You must own an EE bond for at least five years to receive all of the interest due to you. If you sell an EE savings bond during years one through five, you forfeit three months of interest, much like you might with a certificate of deposit (CD).

Historically, EE bonds were structured differently. Series EE bonds purchased between 1997 and 2005 earned a variable rate of interest. They were sold at half of their par value—a.k.a. their face value—and grew to full value at maturity, similar to zero-coupon bonds.

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How Interest Accrues and Compounds

Interest on a bond is fixed. It accrues monthly for bonds issued in May 2005 and after.

The interest rate is added every month to bonds issued between May 1997 and April 2005. It’s compounded semi-annually. Interest is added every six months for most bonds issued before May 1997.

Your bond will continue to accrue interest until 30 years have passed from the date of issue, even though it may have reached maturity.

Check the compounding date first if you're thinking about cashing out a savings bond. You're leaving money on the table if you cash out before interest accrues again.

The following table of interest accrual dates applies to Series EE bonds issued before March 1993, Series EE bonds issued from May 1995 through April 1997, and Series EE bonds issued from March 1993 through April 1995:

Series EE Bond Semiannual Interest Accrual Dates If Month of issue is: Interest will be added on the first day of: January or July January and July February or August February and August March or September March and September April or October April and October May or November May and November June or December June and December

How Are EE Bonds Taxed?

EE bonds are exempt from state and municipal income taxes, unless they are willed to or inherited by someone else. You will owe federal income taxes on interest income earned on EE bonds. You can pay these one of three ways: annually, at maturity or when the bond is cashed. Just note that once you opt to pay taxes annually, you must keep paying them each year; you can’t switch to at maturity or when the bond is cashed. You may be able to avoid all taxes, including federal, on EE bonds, if you use them to pay for qualified higher education expenses.

The owner of an EE bond is liable for tax payments, regardless of who purchased it. This means if you received an EE bond as a gift, you are responsible for paying taxes on it. If an EE bond is co-owned, each owner is responsible for one-half of the tax liability.

Series EE Bond Maturity Dates

When you buy bonds, it’s good to know when they will mature. Here are some examples of maturity dates of bonds issued at different times over the past four decades. These are listed as examples and not an end-all list of maturity dates.

Issue Dates

Maturation

January 1980 through October 1980

11 Years

November 1980 through April 1981

9 Years

May 1981 through October 1982

8 Years

November 1982 through October 1986

10 Years

November 1986 through February 1993

12 Years

March 1993 through April 1995

18 Years

Interest accrual and compounding on Series EE bonds

Series EE bonds issued after 2005 accrue interest at a fixed monthly rate, which is compounded semi-annually. If you have bonds bought prior to that, especially paper bonds, the U.S. Treasury offers a savings bond calculator that can help you figure out what you’ve earned — and what your bond is worth today.

When deciding when to cash in your Series EE savings bonds, wait until after the compounding date. You can get an idea of when to expect your interest to be added to your bond with this chart:

Month of Series EE bond issue Month (first day) interest will be added
January or July January or July
February or August February or August
March or September March or September
April or October April or October
May or November May or November
June or December June or December

How to Gift a Savings Bond

While they won’t come with a huge payoff, savings bonds are still a financially prudent gift. Here’s a step-by-step guide on how to buy and give an electronic savings bond.

  1. Go to www.treasurydirect.gov, and log into your TreasuryDirect account or open an account in your name.
  2. Click on BuyDirect. On the purchase page, either select an existing registration from the drop-down list or create a new registration for the recipient by clicking “Add New Registration.”
  3. Have the recipient’s name and Social Security number on hand to register. Be sure to click the box, “This is a Gift.”
  4. Buy the type of savings bond you wish (Series EE or Series I), in a specific amount ($25-$10,000).
  5. Deliver the savings bond gift to the recipient’s TreasuryDirect account.
  6. Print out a gift certificate to give to the recipient.

Gift savings bonds usually take at least one business day to be issued in a TreasuryDirect account. Once issued, you can go back into your account and deliver it to the recipient. To receive the gift, the recipient must have his or her own TreasuryDirect account. 

What to do when your savings bond matures 

You’ve waited for three decades and your bond has finally matured. If you want to cash in your bonds, there are different steps to take depending on the form you hold (paper or electronic).

  • Electronic savings bonds can be cashed on the TreasuryDirect website, and you’ll receive the proceeds within two days.
  • Paper savings bonds can be cashed at most major financial institutions such as your local bank.

If you can’t find your fully matured paper savings bond, you’ll need to have it replaced electronically by visiting the TreasuryDirect website and filling out the required forms.

You’ll need to know the bond’s serial number, which acts as a unique identifier. If this is not available, you’ll need additional identifying information such as the specific month and year of purchase, the owner’s Social Security number, and names and addresses associated with the bond. It may take a few tries, but it’s possible to locate the bond even if you’ve misplaced it.

You can hold your bond once it reaches maturity, but you won’t earn any additional interest. On one hand, you can’t spend a savings bond without redeeming it, so the value of your bonds would be considered “safe” from that standpoint. On the other hand, you’ll miss out on earning interest from other sources if your bond goes unredeemed. With inflation rates as they are now, it doesn’t make much sense to hold a bond earning nothing and explicitly losing to inflation with each passing day.

As a final consideration, you’ll owe taxes on your bonds when they mature whether or not you redeem your bonds. Make sure to include any earned and previously unreported interest on your tax return in the year of maturity. If you don’t, you might face a penalty for underpayment of taxes.

Series I Bonds

Series I bonds earn a combined interest rate consisting of a fixed rate plus an inflation rate that is adjusted twice a year. For instance, the Series I bonds sold from November 2021 through April 2022 paid a combined initial interest rate of 7.12%.

This rate includes fixed interest rate of 0.00% on the Series I bonds sold during that period. The inflation-adjustment of 7.12% annually reflects the relatively high inflation that prevailed during 2021. That may be adjusted lower or higher at the next semiannual adjustment.

Series I bonds have the same one-year minimum initial holding period as Series EE bonds. Series I bonds also have a three-month interest penalty if cashed before the five-year mark. However, unlike Series EE bonds there is no guarantee Series I bonds will double in value after 20 years.

At 30 years, Series I bonds reach final maturity and stop earning interest. At this point, digital Series I bonds get cashed automatically. Holders of paper bonds purchased with tax refunds can cash them in at that time or later. Mature Series I bonds that no longer earn interest may lose value due to inflation, however.

What is a Series EE savings bond?

A Series EE savings bond is a low-risk investment guaranteed by the U.S. government. It bears interest for 30 years or until you sell it, whichever comes first.

Series EE bond Terminology Glossary

Before describing the specific conditions that apply to Series EE bonds issued on various dates, it’s important to understand the terminology that is used in these explanations. The following list should help. Warning: this gets complicated quickly, thanks to your friends at the US Treasury.

Issue date: The first day of the month of purchase. Shown on the face of the bond. Note that the bond face may also show the date on which the Treasury processed an application and printed the bond, but that’s not the issue date.

Nominal original maturity (date): The latest date at which a Series EE Bond reaches its face value. Because the rate varies over the life of the bond, this is just an estimate. The applicable rates need only exceed the guaranteed rate (see below) by a small amount for the actual original maturity date to occur earlier than the nominal maturity date.

Final maturity (date): the date following which the bond no longer earns any interest (see discussion above about cashing bonds before this date).

Guaranteed minimum rate during original maturity: the minimum interest rate that the US treasury will pay you on the bonds, no matter what the market rate may be. This can either be stated as an interest rate (from which the nominal original maturity date can be calculated) or as a nominal original maturity date (from which the minimum guaranteed rate can be calculated). Note that the Treasury states this guaranteed minimum rate as the overall yield from issuance, not as the minimum rate for each six-month period. For example, if a bond paid 8% for some period of time but the overall guaranteed yield is 4%, then depending on interest rates and markets, the bond might pay just 1% for some six-month periods without violating the minimum-rate guarantee.

Crediting of interest: Prior to 1 May 1995, interest was credited monthly, and calculated to the first day of the month you cash it in (up to 30 months, and to the previous 6 month interval after). Bonds issued after 1 May 1995 and all earlier bonds entering any extended maturity period after 1 May 1995 will only earn interest from that point on every six months. For bonds issued after 1 May 1995 or for earlier bonds entering any extended maturity period after that date, you cash them as soon as possible after any 6 month anniversary date, because cashing a bond any time between any two 6th month anniversary dates loses all interest since the last 6 month anniversary date.

Maturity period: there are actually three different maturity periods. First, the initial maturity period is the time required to achieve the guarantee that the bond will double in value. Bonds issued in 2004 are guaranteed to double in value in 20 years, so that’s their initial maturity period. Second, an extended maturity period is begun at the end of the initial maturity period if there are more than 10 years left before the bond stops earning interest. An extended maturity period is always 10 years long. Third, the final maturity period is the maturity period in which the bond stops earning interest. The final maturity period can be any length.

For example, EE bonds issued in 2004 have only the 20-year initial maturity period and a 10-year final maturity period. Earlier bonds with a 17-year initial maturity period have one 10-year extended maturity period and a 3-year final maturity period. The only context in which maturity periods are relevant is with guaranteed rates, which neither the EE nor the I Bonds issued in 2004 have. For older bonds crossing over from one maturity period to another, however, they pick up the current guaranteed rate (4% as of early 2004) when they cross the boundary.

What If a Savings Bond No Longer Earns Interest?

What’s interesting about series EE savings bonds is that you don’t have to cash the bond once it reaches maturity.

Just know that once the bond reaches full maturity, it stops earning interest and its value freezes.

Some people cash the bond at this time and put the money to good use.

Others, however, hold onto the savings bond to keep the cash inaccessible. This way, they don’t spend the proceeds frivolously.

This is an option. But rather than keep a savings bond that’s no longer earning interest, consider other alternatives.

For example, it might make more sense to cash the bond and invest it elsewhere. Maybe put the proceeds in an online high-yield savings account or an online high-yield certificate of deposit.

There’s even the option of rolling a matured U.S. savings bond into a 529 college savings plan for future education expenses.

Or, use the proceeds from a matured savings bond to buy another treasury bond.

Final Word

Having a diversified investment portfolio can increase the likelihood that your money will grow steadily without too much risk.

If you have a regular savings account and a retirement account, but you’re looking to add other savings vehicles, consider a Series EE savings bond.

It is a reliable, safe investment, and you’re guaranteed to double your money in 20 years.

If you don’t think a savings bond is right for you, consider other safe solutions.

These include a certificate of deposit, a money market account, or perhaps an online high-yield savings account.

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