Bonds offer investors an alternative way to earn interest with their money without having to open a brokerage account and buy stocks. Bonds are a relatively low-risk investment, allowing investors to earn a specific interest rate on their money. Bonds can be a good alternative to savings accounts, which don't offer guaranteed interest rates.
There are many different types of bonds, including corporate bonds issued by companies, municipal bonds, and U.S. Treasury bonds. Corporate bonds account for the largest segment of the U.S. bonds market, followed by U.S. government bonds.
Many bond investors were hurt last year, as the Federal Reserve began hiking interest rates at a rapid pace. As interest rates rise, new bonds being issued offered much higher interest rates than in the past, which made older bonds less valuable.
Before you cash in your bonds, there are a few things you need to know. Here's what happens if you try to cash into too many bonds at once and why you should call your bank ahead of time before trying to cash in physical bonds.
What happens if you cash too many bonds at once
For the sake of simplicity, let's assume you're interested in cashing in your U.S. Treasury savings bonds. One of the easiest ways to do this is through the U.S. Treasury Department's bond website, Treasury Direct.
Treasury Direct says that it doesn't have a limit on the number of savings bonds you can cash or the value of the bonds as long as the bonds meet the requirement for cashing. The site even has a calculator to help you determine how much your bonds are worth.
If you want to cash your physical savings bonds through your bank, you'll need to check with them first to see what their limits are. Banks often set limits for how much money you can withdraw or deposit at any given time, and the same is true for cashing a savings bond.
You may need to contact your bank directly to find out what limits it has set or if you can cash in your savings bonds at all. Some banks, including Capital One, don't cash savings bonds at all; others will only do so if you've had an account at the bank for more than 12 months.
For example, U.S. Bank doesn't list a dollar amount limit to redeem bonds, but it does say that if you're cashing in more than $1,000 in bonds, you should have to have the paperwork certified. This may require you to fill out extra paperwork and sign it in the presence of a notary. The U.S. Treasury stopped issuing most savings bonds in physical form at the end of 2011, so this process should continue to get easier for savings bond holders in the future.
Some banks may allow you to cash in your bonds with them without having an account, but each bank has its own rules, so check with banks beforehand to ensure you'll be able to cash them at a local branch.
Make sure to let your bonds mature
Before you consider cashing in your bonds, you want to ensure they've fully matured. Cashing them in too early will often result in penalties.
For example, if you have government-issued Series I bonds, you should hold them for at least five years to avoid paying a penalty. While you're allowed to cash them in after just 12 months, doing so before five years will result in losing the last three months of interest.
Still, bonds can be a great way to supplement your investment portfolio by accruing interest in a relatively low-risk manner. Just be sure that you know how long you'll need to hold onto them and how your bonds may be affected by inflation.
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FAQs
A paper savings bond must be cashed for its entire value. At a bank: Banks vary in how much they will cash at one time – or if they cash savings bonds at all. With us: We have no limit on the value or number of savings bonds you can cash at one time as long as the bonds meet the requirements for cashing.
What is the penalty for cashing in bonds? ›
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.
How do I cash a large amount of savings bonds? ›
Where do I cash in a savings bond? You can cash paper bonds at a bank or through the U.S. Department of the Treasury's TreasuryDirect website. Not all banks offer the service, and many only provide it if you are an account holder, according to a NerdWallet analysis of the 20 largest U.S. banks.
How do I avoid taxes when cashing in savings bonds? ›
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent. Only certain qualified higher education costs are covered, including: Tuition.
How much is a $50 savings bond worth after 30 years? ›
How to get the most value from your savings bonds
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
Note: United States Savings Bonds must be held for a minimum of one year from their issue date before they are eligible to be redeemed.
- Log into your primary TreasuryDirect® account.
- Click the ManageDirect® tab at the top of the page.
- Under the heading Manage My Securities, click "Redeem securities".
A 3-month interest penalty will apply to bonds cashed before five years. Some older EE Bonds earn interest based on 5-year Treasury security yields or at a guaranteed minimum. The rate that Treasury announces each May and November is applied to a bond for the 6-month earning period.
Are I bonds taxable when cashed? ›
Yes, I bonds are subject to taxation. But they provide certain tax benefits that distinguish them from other investments and can result in lower tax payments. The original amount you invested in the bond isn't taxed, but the interest earned is.
Will my bank cash my bonds? ›
Banks and credit unions can redeem savings bonds over the counter.
Can I cash my deceased parents' savings bonds? ›
Yes, you may redeem a bond to the estate of the last decedent on a bond. Retain both death certificates and a copy of the letters of appointment for the representative. Redemption requests may also be sent to the Treasury Retail Securities Site at the Federal Reserve Bank of Minneapolis for processing.
Savings bonds can generally be redeemed with the bank where you have a checking account. For example, at Bank of America, customers who have had a checking or savings account open for at least six months can easily cash in their savings bonds.
Does Citizens bank cash savings bonds? ›
Electronic savings bonds can be purchased online through Treasury Direct. Existing paper bonds are still valid and will earn interest for 30 years from the issue date or until redeemed. You can however continue to cash your savings bonds at Citizens National Bank.
Does cashing savings bonds count as income? ›
In general, you must report the interest in income in the taxable year in which you redeemed the bonds to the extent you did not include the interest in income in a prior taxable year.
Will I get a 1099 for cashing in savings bonds? ›
If you cash a paper savings bond at a local bank, that bank is responsible for giving you a 1099. If you cash a paper savings bond by mailing it to Treasury Retail Securities Services, we mail you a 1099 by January 31 of the following year. (You can call us for a duplicate statement, if needed, beginning February 15.)
Do you get penalized for cashing in savings bonds? ›
Anyone who's 18 or older with a valid Social Security number, U.S. bank account, and U.S. address can purchase savings bonds. They're available to be cashed in after a single year, though there's a penalty for cashing them in within the first five years.
Can you take money out of bonds at any time? ›
You can cash in all or part of your Bonds at any time.
What is the maximum amount of bonds you can hold? ›
Anyone aged 16 or over can buy Premium Bonds. Parents, legal guardians and (great) grandparents can invest on behalf of their child or grandchild aged under 16. You can invest from £25 up to £50,000 in total. Premium Bonds don't pay any interest.
How long does it take for a $50 savings bond to mature? ›
They're available to be cashed in after a single year, though there's a penalty for cashing them in within the first five years. Otherwise, you can keep savings bonds until they fully mature, which is generally 30 years.
How long does it take to get money from TreasuryDirect? ›
You just bought a security from the U.S. Treasury. Securities are generally issued to your account within two business days of the purchase date for savings bonds or within one week of the auction date for Bills, Notes, Bonds, FRNs, and TIPS.
