How To Cash A Paper Savings Bond

Savings bonds have been around since 1935, but have increased in popularity in recent years. In fact, Series I savings bonds were in such high demand in late 2022 that they crashed the website of the Treasury Department. 

But savings bonds are not only sold in digital form – you can still buy paper savings bonds. If you own paper savings bonds, you might be considering cashing them out. There are a few reasons why cashing a paper savings bond can make sense, and the process is fairly straightforward.

What Are Savings Bonds And How Do They Work?

When President Franklin Roosevelt signed legislation creating the first “baby bond”, he ushered in a new era allowing citizens to save towards the future. Savings bonds helped to partially finance the federal government, and investors made them an important part of their retirement and other savings plans. 

Today the U.S. government offers two different types of savings bonds, Series EE and Series I bonds. When you buy federal savings bonds, you are lending money to the government, which agrees to pay that money back later, with interest.

Currently, bonds earn interest for 30 years, after which they stop earning interest. You can cash in a savings bond at any time after holding it for at least one year, but if you cash in your bond before having owned it for five years, you lose the last three months of interest.

Where To Cash A Paper Savings Bond

Nowadays, most bonds are bought and sold electronically through the TreasuryDirect website, but it is still possible to buy and sell paper savings bonds through your local bank.

The Treasury Department provides additional instructions for cashing paper savings bonds in unusual situations, like if you live outside the U.S., are not the bondholder, or are cashing bonds for a child.

What Do I Need To Cash A Paper Savings Bond?

Most U.S. banks will cash savings bonds if you are a customer, but you should contact your bank directly beforehand to make sure that they can accommodate you. You can also ask what documentation you’ll need to provide.

In many cases, you only need to show the actual paper savings bond along with identification. If the name on your ID is different than the name on the bond, say, the bond is in your maiden name, you may also need to show documentation of the name change.

When Should You Cash A Paper Savings Bond?

There are a few situations where it can make sense to cash a paper savings bond. The first is if you’ve held the bond longer than 30 years. Currently, savings bonds only earn interest for a period of 30 years. If you hold the bond any longer than that, you won’t earn any additional interest, so there’s no point in continuing to hold the bond without cashing it.

Another reason to consider cashing a savings bond would be to move the money to another investment. Savings bond yields can vary, but you may find that you can get a better return with a different type of investment. Cashing out a savings bond that earns 2% per year to invest that money in an index fund averaging 7% annually may be a smart long term financial move.

Consider talking with a financial advisor to determine how you should invest your money, since savings bonds are, by definition, a nearly completely risk-free investment, and other investments will likely carry a higher level of risk.

A few years ago while I was cleaning out my basement, I came across several paper savings bonds that I had gotten many years previously by sending in box tops from the back of cereal boxes (yes, really).

I had completely forgotten about them and had no idea what they might be worth. I found out that they were earning barely any interest, so I decided to cash them in. I was worried that it would be a big hassle, but I took them to my local bank and they were easily able to tell me how much they were worth and paid me cash on the spot.

Do I Owe Taxes When I Cash A Paper Savings Bond?

Yes, you will owe taxes when you cash your savings bonds. While you can pay taxes on the interest you earn as you go, it’s more common to pay income tax in the year where you cash out your savings bonds. If you cash out your paper savings bonds at a local bank, the bank may give you a 1099-INT form on the spot or mail you one the following January. Generally speaking, savings bond interest is reported the following year along with any other interest income that you earn.

The Bottom Line

If you are like me and have a slew of paper savings bonds in your basement, you don’t need to worry about how to cash them in. It’s a fairly straightforward process in most cases – just head to your local bank and they should be able to take care of you.

The two scenarios where you’ll want to consider cashing in your paper savings bonds are if you’ve held them for at least 30 years or if you want to switch to an investment with a higher return.