Do I Have to Pay Interest on Savings Bonds Before I Cash Them?

by Melanie J. Martin
Savings bonds are a strong investment because they're guaranteed to pay off.

Savings bonds are a strong investment because they're guaranteed to pay off.

Savings bonds give you a secure way to invest your money, if you're willing to wait for the results. As Tom Adams says in "Savings Bond Advisor," the only risk with savings bonds is the risk of forgetting you have them. If you cash bonds early, you won't have to pay anything, but you'll forfeit a portion of the bonds' earnings. However, you won't have to forfeit interest earned if you plan wisely.


Timing is everything when it comes to cashing savings bonds. You can cash the bonds after one year. However, if you cash them less than five years after they were purchased, you'll forfeit the interest earned over the last three months. After five years, you can cash them without incurring this penalty. Thus, you shouldn't cash your bonds prematurely unless you urgently need cash.

How Bonds Work

When you purchase a bond, you lend money to the federal government. In exchange, you receive interest that accumulates until the interest earning period expires, a period of 30 years. The federal government taxes the interest on the bonds, although you may be exempt from paying taxes on your bonds if you use them for education. You must report the interest on your tax return when you redeem the bonds or reissue them to someone else.

I Savings Bonds

I Savings Bonds always sell at face value, meaning a $100 bond costs $100. The bond earns interest, at a rate of 4.6 percent as of publication. You can purchase them electronically from the U.S. Treasury for any amount equal to or more than $25. Alternatively, the Treasury sells paper I Savings Bonds at fixed amounts including $50, $75, $100, $200, $500, $1,000 and $5,000.

EE Savings Bonds

Paper EE Savings Bonds sell for half their face value, the amount you receive when they mature. Electronic EE Savings Bonds sell for their face value. In other words, a $100 bond costs $100. EE Savings Bonds earn interest at a rate of 1.1 percent as of publication. Electronic EE Savings Bonds sell for any amount starting at $25. Alternatively, these bonds sell in paper form for the following amounts: $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000.

About the Author

Melanie J. Martin specializes in environmental issues and sustainable living. Her work has appeared in venues such as the Environmental News Network, "Ocean" magazine and "GREEN Retailer." Martin holds a Master of Arts in English.

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