Due to the increasing inflation rates, Series I savings bonds have become incredibly popular amongst investors. From May 2022 to October 2022, these bonds earned an impressive composite rate of 9.62% within the first six months. This resulted in investors pouring over $1 billion into I bonds in October alone. The trend continued with the I bonds issued from May 2023 to October 2023, offering a composite interest rate of 4.3% for the initial six months. While it may be a significant drop, it still remains an attractive return for a risk-free investment. While savings bonds can accrue interest for up to 30 years, some individuals may choose to redeem them earlier. It’s important to note that both I bonds and EE bonds (which carry a fixed 2.5% rate for bonds issued from May to October 2023) can be cashed in after being held for one year. However, if you choose to redeem the bonds within five years, the last three months’ worth of interest will be forfeited.
To begin cashing in your savings bonds, there are a few specific steps you need to take. Firstly, it is crucial to determine the current value of your bonds. To do this, you can log in to your account on the TreasuryDirect website, www.treasurydirect.gov. The site will provide you with a list of your owned securities and their respective values. For those with paper savings bonds (which were mostly phased out in 2011), you can use the website www.treasurydirect.gov/BC/SBCPrice.
Once you have assessed the value of your bonds, the next step is to redeem them. For electronic bonds, you can log in to your account on the TreasuryDirect website and click on the link to cash out your securities. It’s important to note that the minimum redemption amount is $25, and if you choose to cash out only a portion of your bond, you will only receive interest on the redeemed amount.
On the other hand, if you possess paper bonds, the process is slightly different. Unlike electronic bonds, paper bonds must be redeemed in their entirety. One option is to visit a bank that redeems savings bonds, although not all banks offer this service. You will need to fill out FS Form 1522 and bring it with you to the bank. If you plan on cashing out more than $1,000, you will also require a certified signature, such as one from a notary public. If you are unable to find a bank that will redeem your savings bonds, you can fill out FS Form 1522 and mail it to the Treasury address listed on the form. It’s essential to note that paper bonds are only cashed out through direct deposit, so be sure to include your bank’s routing and account number.
For individuals with older paper bonds that are no longer earning interest or those trying to determine whether a deceased loved one had matured paper bonds, the Treasury Hunt website can be a useful resource. To access the site, you will need to enter your Social Security number or the deceased owner’s SSN. If your bonds are listed on the site, you can contact TreasuryDirect.gov to find out how to claim and redeem them. If you are not listed as the owner of a bond, you must provide documentation via mail to prove that you have a legal right to redeem it.
When it comes to the tax implications of savings bonds, the interest earned is free from state and local income taxes. Additionally, you can defer federal tax until you decide to cash in the bond. However, it’s important to note that once you redeem your savings bond, you will owe taxes on the accrued interest. If you redeemed your bonds online, the Treasury will send you a Form 1099-INT, which you will need to report taxable interest on your tax return. If you cashed out your bonds through a bank, the bank should provide you with a Form 1099-INT.