Learn About Cashing In EE Savings Bonds

Understanding Series EE Savings Bonds and Their Basic Features

Series EE Savings Bonds are debt securities issued by the U.S. Department of the Treasury. When you purchase an EE bond, you are essentially lending money to the federal government, which promises to repay you with interest after a set period of time. These bonds have been a savings tool for American families since 1941, and they remain available today through programs managed by the Treasury Department.

EE bonds operate on a straightforward principle: you buy a bond at half its face value. For example, if you purchase a $100 face value bond, you pay $50 upfront. The bond then earns interest over time until it reaches its full face value of $100. This means your initial $50 investment will eventually become $100, representing a 100% return. However, this growth does not happen all at once—it occurs gradually as interest accrues.

The interest rate on EE bonds is set by the Treasury Department and changes twice per year, on May 1st and November 1st. As of recent years, the interest rate has ranged from around 2% to 5% annually, depending on market conditions. The Treasury announces these rates publicly so savers can see exactly what return they will receive on their bonds.

EE bonds have a maturity period of 30 years, meaning the Treasury guarantees the bond will reach its face value within that timeframe. However, you are not required to hold the bond for the entire 30 years. You may cash in your bond at any point after you have held it for one year. If you cash in a bond before five years have passed, you will lose the last three months of interest as a penalty. After five years, you can cash in your bond without this penalty.

One important feature of EE bonds is that they are registered to a specific person or entity. You cannot simply hand an EE bond to someone else or trade it like a stock. The Treasury keeps records of who owns each bond, and only the registered owner (or a designated beneficiary in case of death) can cash it in.

Practical Takeaway: EE bonds work best for people who can afford to keep their money invested for at least one year, and preferably five years or longer, because of the penalties for early withdrawal. If you need access to your money in the short term, EE bonds may not be the right choice.

How to Cash In Your EE Savings Bonds

Cashing in an EE Savings Bond is a process that begins by determining where your bonds are held. Many bonds issued before 2012 exist in paper form, while bonds issued from 2012 onward are kept in electronic form through the Treasury's online system called TreasuryDirect. The method you use to cash in your bond depends on which format you have.

If you have paper EE bonds, you must take them to a financial institution such as a bank or credit union that offers savings bond redemption services. Not every location of every bank will redeem bonds, so you may need to contact your branch in advance to confirm they offer this service. When you bring your bonds to the bank, bring a valid form of identification such as a driver's license or passport. The bank will examine your bonds to verify they are authentic and that you are the registered owner. The bank will then process the redemption and provide you with payment, typically in the form of a check or direct deposit into your account.

For electronic EE bonds held in TreasuryDirect, the process is different and happens entirely online. You log into your TreasuryDirect account using your username and password. Within your account, you navigate to the section that shows your current holdings and select the bond or bonds you wish to cash in. TreasuryDirect allows you to redeem bonds in increments as small as one cent, meaning you have complete flexibility over how much of your bond's value you withdraw. After you confirm your redemption request, the Treasury typically processes the payment within two business days. The funds are deposited directly into the bank account you have linked to your TreasuryDirect account.

The timing of when you cash in your bond affects how much interest you receive. Interest on EE bonds accrues monthly, but it is only paid out in certain scenarios. When you redeem a bond through either method, you receive all accrued interest up to the current date. If you cash in a bond on the first day of a month, you receive interest through that day. If you cash in on the 15th of a month, you receive interest through the 15th. This means the exact date of redemption matters when calculating your return.

You should be aware that the Treasury requires a waiting period before processing certain redemptions. For electronic bonds, you must have held the bond for at least one year before redeeming it. If you attempt to redeem before one year has passed, the system will not process your request. For paper bonds, the financial institution redeeming them will verify the purchase date and enforce the same one-year holding requirement.

Practical Takeaway: Gather your bonds or log into your TreasuryDirect account to confirm where your bonds are held and their current value before you decide to redeem them. This information determines which redemption method you will use and how quickly you will receive your funds.

Understanding Taxes and Reporting Your Bond Redemption

When you cash in an EE Savings Bond, the interest you earned is subject to federal income tax. This is an important financial consideration that affects how much money you actually keep from your redemption. The interest is taxed as ordinary income at your marginal tax rate, which means it is added to your other income for the year and taxed according to the federal tax brackets.

Here is an example of how this works in practice: suppose you purchased a $50 EE bond in 2019 and redeemed it in 2024. Your bond grew to a value of $65, meaning you earned $15 in interest over five years. When you report this on your tax return, that $15 is added to your other income for the year. If you are in the 22% tax bracket, you would owe approximately $3.30 in federal income tax on that interest. You keep the remaining $11.70 of your interest earnings after taxes.

The Treasury does not automatically withhold taxes from your redemption. This means when you cash in a bond, you receive the full redemption amount without any money being set aside for taxes. You are responsible for reporting the interest income when you file your annual tax return. This is why it is important to keep records of your bond redemptions and the interest amounts.

If you redeemed bonds in a particular year, you may receive a Form 1099-INT (Interest Income) from the financial institution that redeemed paper bonds, or from Treasury Direct if you redeemed electronic bonds. This form reports the interest income to you and to the IRS. If you do not receive a Form 1099-INT but believe you should have, contact the organization that redeemed your bonds to request one.

Some people may be unaware that there is a way to potentially defer taxes on EE bond interest. If you meet certain conditions, you may be able to use a provision in the tax code that allows you to exclude EE bond interest from your taxable income if the proceeds are used for qualified education expenses. This is called the Education Savings Bond Program. To use this provision, the bonds must have been issued to you when you were at least 24 years old, and the education expenses must be paid in the same year the bonds are redeemed. This option has income limits and other conditions, so you should consult with a tax professional if you think this might apply to your situation.

Practical Takeaway: Set aside money from your bond redemption to cover the federal income taxes you will owe on the interest earned. As a rough estimate, multiply the interest amount by your tax bracket percentage to determine how much you should reserve. Keep records of all bond redemptions for your tax records.

State and Local Tax Considerations for Savings Bond Interest

While federal income tax applies to EE bond interest everywhere in the United States, state and local tax treatment varies significantly depending on where you live. Some states do not tax interest income on savings bonds at all, while others tax it the same as any other interest income. Understanding your state's tax rules can help you plan your bond redemptions more effectively.

Currently, 11 states do not have an income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee,