What Happens When a Bond Is Cashed Prematurely?

by W D Adkins

U.S. Savings Bonds are a popular way of saving money because they are safe and you can start with as little as $25. Your experience with saving or investing may have begun when someone gave you one as a gift. A savings bond doesn’t mature for quite a while -- 20 years is typical and the maturity may be extended. However, you may find you want to cash a bond in prematurely. That is allowed, but there are some things for which you should watch out.


The U.S. Treasury Department sells two kinds of savings bonds Series E bonds pay a fixed interest rate. Series I bonds feature a composite rate. Part of a series I bond’s interest is fixed and the other part varies with the rate of inflation. The rules governing redemption (cashing in) of savings bonds are the same for both types. However, the procedure you follow to cash in a bond prematurely varies depending on whether the bond is an electronic or traditional paper bond.

Early Redemption

When you buy a savings bond, you must wait at least one year after the date of issue (the purchase date) before you can cash it in. If you redeem a savings bond less than five years from the date of issue, you will forfeit three months interest. Once a bond is five years old, you can cash it in anytime without penalty. You should be careful to redeem a savings bond prior to the final maturity date, however. Bonds held past their final maturity date stop earning interest and the IRS may hit you with a tax penalty.


If you own savings bonds in electronic form, you also have an online account with TreasuryDirect (treasurydirect.gov). This makes cashing in bonds simple. Just login to your account and follow the prompts. Your bank account will be credited within one business day. If you are co-owner of a savings bond with someone who dies, you automatically become sole owner and you may cash in the bond with no special procedures. However, when you inherit savings bonds and the estate is not administered by a court (administration is required for $100,000 or more worth of savings bonds) you do have to follow a special procedure. Complete form 5336 and send it with the bonds and proof of the owner’s death to the address on the form.

Paper Savings Bonds

The Treasury Department has phased out the traditional paper savings bond as of the end of 2011. If you own paper savings bonds, you can continue to hold them until they mature. If you decide to cash them in prematurely, you’ll need to take them to your bank or another financial institution that redeems savings bonds. Be sure to bring a valid photo ID. The bank can redeem up to $1,000 worth of savings bonds at one time. If you have more, complete the form on the back of the savings bond. This form must be signed in the presence of a bank official. Mail the bonds to your Treasury Retail Securities Site. A list of these sites is available online at TreasuryDirect.

About the Author

Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.

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