Savings bonds are debt securities issued by the U.S. Department of the Treasury as a way for the government to borrow money from individual investors. They are considered a low-risk investment option and are often used as a way to save money for the future.
It is the most relatively simple to cash in savings bonds that have matured and are no longer earning interest. If you need access to cash, even bonds that haven’t reached maturity may be worth turning in savings bond. If you are suffer and struggling with debt, cashing in a bond is a best way to pay it off, even if the bond is cashed in early.
Most bonds can be cashed in after one year or more than year , but you will lose three months’ worth of interest if you cash them in before five years or less than five years. If you are holding hundreds or two hundreds of dollars in savings bonds, you will still get them back at their current values.
Series EE Bonds
Series EE Bonds. These bonds are purchased at a discounted price and accrue interest over time. They have a fixed interest rate that applies for up to 30 years. Series EE bonds can be purchased in denominations as low as $25 up to a maximum of $10,000 per calendar year for each Social Security Number.
For example, if you buy a $100 Series EE bond, you might pay $50 for it. Over time, it will earn interest based on its face value of $100 until it reaches maturity, which can occur after 20 years or earlier.
Series I Bonds
Series I Bonds. These bonds earn interest based on a fixed rate and an inflation rate. The interest rate for Series I bonds is composed of two parts: a fixed rate set at purchase and an inflation rate that adjusts semi-annually based on changes in the Consumer Price Index for all Urban Consumers (CPI-U). Series I bonds can be purchased in the same denominations as Series EE bonds.
For instance, if you buy a $100 Series I bond and the combined fixed and inflation rate is 3%, the bond will adjust its value based on inflation every six months until it reaches maturity.
Difference Series EE and Series I Bonds
Both Series EE and Series I bonds can be purchased electronically through Treasury Direct or in paper form from financial institutions. They are considered safe investments because they are backed by the U.S. government and are exempt from state and local taxes. Additionally, the interest earned on savings bonds may be tax-deferred until the bonds are cashed in or reach maturity.
Series EE Bonds
EE bonds are typically purchased at half of their face value. For instance, you might buy a $50 EE bond for $25.They earn interest for up to 30 years from the date of issue. These bonds pay a fixed interest rate, which is determined when you buy the bond. The rate remains the same for the life of the bond. You can cash in EE bonds after 1 year, but if you redeem them before 5 years, you’ll forfeit the interest earned over the last 3 months.
Example: Let’s say you buy a $100 Series EE bond with an interest rate of 3%. Over time, the bond will gradually grow in value as it earns interest. After 20 years, it will be worth more than its face value.
Series I Bonds
I bonds are also bought at face value, meaning you pay $50 for a $50 bond. They earn interest based on a combination of a fixed rate and an inflation rate that changes every six months. Similar to EE bonds, I bonds can be cashed after 1 year, but if redeemed before 5 years, you’ll lose the last 3 months’ worth of interest.
Example: Let’s assume you buy a $100 Series I bond with a fixed rate of 1% and an inflation rate of 2%. The interest you earn will adjust every six months based on the inflation rate. So, if inflation rises, your bond’s interest will increase, providing a hedge against inflation.
Both Series EE and Series I bonds are low-risk investments, but they have differences in how they earn interest. EE bonds have a fixed interest rate, while I bonds have a rate that adjusts with inflation, making them more suitable for protecting against rising prices.
Cashing in savings bonds you need to know this steps
Check Maturity Date. Savings bonds have different maturity dates, and cashing them in before maturity can incur penalties or lower returns. Know the maturity date of your bond
Gather Documentation. You’ll need the physical bond or access to the bond’s serial number, your identification (such as driver’s license, passport, or Social Security Number), and a form of ID for witnesses if cashing in on behalf of someone else
Locate a Financial Institution. Banks, credit unions, and some financial institutions can help with cashing in savings bonds. Not all institutions cash savings bonds, so call ahead or check their policies online
Complete Necessary Forms. Most institutions have their own specific forms for cashing in savings bonds. You may need to fill out Treasury Form 1522 (for paper bonds) or use an online platform if the bond is held electronically
Submit Forms and Bonds. Take the completed forms and the savings bond(s) to the financial institution. Ensure all documents are accurately filled out to avoid delays
Verification and Processing. The institution will verify your identity and the authenticity of the bond. Processing times can vary, but it typically takes a few days to a few weeks for the funds to be available
Receive Funds. Once the bonds are processed, you can receive the funds either as a direct deposit into your bank account or as a cash or check payment, depending on the institution’s policies
Tax Considerations. Interest earned on savings bonds is subject to federal income tax but is tax-deferred until you redeem the bonds or they reach maturity. Consult with a tax professional for any tax implications
Keep Records. Keep records of the transaction and the redeemed bonds for tax purposes and future reference
Remember, it’s crucial to verify all details with the institution you plan to use for cashing in the savings bonds, as their procedures and requirements may vary slightly. Additionally, consider any potential tax implications before redeeming your savings bonds
