You can cash in I bonds anytime after one year, but the rules change depending on how long you have held them

An I bond becomes yours to cash in one year after you buy it. Before the five-year mark, you will lose the last three months of interest as a penalty. After five years, you cash it in with no penalty and receive all the interest you earned. The actual process is straightforward: you contact the Treasury Department through TreasuryDirect (the official online system where most people hold I bonds), request a redemption, and the money lands in your bank account within a few business days.

The decision of when to cash in matters because of that interest penalty. If you bought an I bond two years ago and need the money now, you will lose three months of earnings but still walk away with your original investment plus nearly two years of interest. If you can wait three more years until the five-year anniversary, you keep every penny of interest earned. Understanding the math of that trade-off—what you lose versus what you gain by waiting—is the real skill in managing I bonds.

Key Takeaways

  • I bonds can be cashed in anytime after one year, but you forfeit the last three months of interest if you redeem before five years have passed.
  • After five years, you can cash in an I bond with no penalty and receive all interest earned since purchase.
  • Redemptions are processed through TreasuryDirect, the Treasury Department's official website, and funds arrive in your linked bank account within a few business days.
  • The interest rate on I bonds changes every six months, so the rate you earned in the first six months may differ from the rate in months seven through twelve.
  • You cannot cash in an I bond before one year has passed, no matter the circumstances.

The one-year holding period and the three-month penalty

You must own an I bond for at least one year before you can cash it in. This is a hard rule with no exceptions. If you buy an I bond on March 15, you cannot redeem it until March 15 of the following year at the earliest.

If you redeem between one year and five years after purchase, the Treasury withholds the last three months of interest. This is not a fee—it is a forfeiture of earnings. If your I bond earned $120 in interest and you cash it in at year three, you receive your original investment plus $90 (the first 33 months of interest). The $30 (three months of interest) is gone.

This penalty exists to discourage early redemption. The Treasury wants I bond holders to keep their money invested for the long term. The penalty is steep enough that many people choose to wait out the remaining time rather than lose those months of earnings.

Redeeming after five years with no penalty

Once an I bond reaches its five-year anniversary, you can cash it in and receive every dollar of interest you earned. There is no penalty, no withholding, and no reduction in your payout. If you bought an I bond on March 15, 2019, you can redeem it on March 15, 2024, and receive your full balance.

I bonds continue to earn interest for up to 30 years from the date of purchase. Many people hold them well beyond five years because the interest rate adjusts every six months and can remain attractive. But the five-year mark is the point where the penalty disappears, so it becomes a true choice rather than a financial sacrifice to cash in early.

How to redeem through TreasuryDirect

Most I bonds are held in TreasuryDirect, the Treasury Department's online account system. To redeem, you log into your TreasuryDirect account, navigate to the "Manage Securities" section, and select the I bond you want to cash in. You will see the current value (your original investment plus all interest earned to date) and the redemption date options available to you.

TreasuryDirect will show you whether you are past the one-year mark and whether the three-month penalty applies. If you are within the one-to-five-year window, the system displays the penalty amount so you see exactly what you will lose. You confirm the redemption, and the Treasury processes it within a few business days.

The money goes directly to the bank account you have linked to your TreasuryDirect account. You cannot request a check or have the funds sent elsewhere. If you have not yet linked a bank account, you will need to do that before redeeming.

Paper I bonds and older bonds held elsewhere

If you own a paper I bond (purchased before 2012, when the Treasury stopped issuing them), the redemption process is different. You cannot redeem through TreasuryDirect because paper bonds are not in that system. Instead, you take the physical bond to a bank or credit union and request redemption. They verify the bond, process the transaction, and deposit the funds into your account.

Some older I bonds may be held in a legacy system or with a financial institution. If you are unsure where your bond is held, you can search the Treasury's FedInvest system or contact the Treasury Retail Securities Site at 844-284-2676. They can tell you where your bond is registered and walk you through the redemption process for that specific location.

What happens to interest after you redeem

Interest on an I bond accrues monthly but is only credited (added to your account) every six months. The redemption value you see in TreasuryDirect includes all interest credited through the current month, even if the six-month crediting date has not arrived yet.

If you redeem on a date between crediting periods, you receive interest through the end of the month in which you redeem. You do not receive a partial month of interest. For example, if you redeem on March 15 and the last crediting date was January 1, you receive interest through March 31.

Tax reporting for redeemed I bonds

The interest you earn on I bonds is subject to federal income tax, but not state or local income tax. When you redeem, the Treasury does not withhold taxes automatically. You are responsible for reporting the interest as income on your federal tax return for the year in which you redeem.

The Treasury will send you a Form 1099-INT (Interest Income) if the interest earned exceeds $10 in a calendar year. Keep records of your redemption confirmation from TreasuryDirect, as you may need it to match against the 1099-INT or to document your cost basis if you ever need to prove what you originally paid for the bond.

Frequently Asked Questions

What if I need the money before one year has passed?

You cannot redeem an I bond before one year of ownership. If you need cash urgently, you will have to use a different source. I bonds are designed as longer-term savings, and the one-year lock-in is part of that structure.

Can I redeem just part of an I bond?

No. I bonds are redeemed in full. You cannot cash in half of a bond and keep the other half earning interest. If you own multiple I bonds, you can choose which ones to redeem and leave others untouched.

How long does it take to receive the money after I request redemption?

TreasuryDirect typically processes redemptions within a few business days. The exact timing depends on your bank's processing speed for incoming transfers. Most people see the funds in their account within three to five business days of submitting the redemption request.

Do I have to pay state taxes on I bond interest?

No. I bond interest is exempt from state and local income taxes. You only owe federal income tax on the interest earned. This is one reason I bonds are popular for savers in high-tax states.

What if I lost my I bond or forgot where I bought it?

Search the Treasury's FedInvest system at treasurydirect.gov to locate bonds registered in your name. If you cannot find it there, contact the Treasury Retail Securities Site at 844-284-2676. They can search their records and help you locate or replace a lost bond.