The best time to cash a savings bond depends on your interest rate, your current needs, and whether you'll owe taxes on the earnings

You can cash a savings bond whenever you want after it reaches final maturity or after you've held it for one year, whichever comes first. But the right time to actually do it depends on three things: how much interest your bond is still earning, whether you need the money now, and how cashing it will affect your taxes that year. A bond earning 5% interest is worth holding longer than one earning 0.1%. A bond you bought 29 years ago is earning nothing and should probably be cashed. A bond you bought last month is still in its penalty window and will cost you money to redeem early.

The decision comes down to comparing three numbers: what your bond is earning right now, what you could earn by moving the money elsewhere, and what the tax impact will be in the year you cash it. If none of those numbers favor holding the bond, cash it.

Key Takeaways

  • Series EE and I bonds stop earning interest at final maturity (30 years for both), so holding them past that point costs you nothing but gains you nothing.
  • Cashing a bond within the first five years of purchase triggers a three-month interest penalty, so early redemption usually makes sense only if you need the money urgently.
  • The interest you earn on savings bonds is subject to federal income tax in the year you cash them, so cashing a large bond in a low-income year can reduce your tax bill.
  • I bonds purchased before May 2022 may still be earning higher rates than current bonds, making them worth holding longer if you don't need the cash.
  • You can check your bond's current value and earnings rate on TreasuryDirect.gov, which tells you exactly how much interest it's still accruing each month.

Bonds that have reached final maturity should be cashed

Series EE bonds stop earning interest after 30 years. Series I bonds also stop earning interest after 30 years. Once a bond stops earning, there is no financial reason to hold it. The money sits in a government account earning nothing when you could move it to a savings account, money market fund, or any other vehicle that pays interest.

Check your bond's maturity date on TreasuryDirect.gov by logging into your account. If the bond has passed its final maturity date, cash it immediately. If it's within a year of final maturity, plan to cash it on or shortly after the maturity date. There is no penalty for waiting until the exact maturity date, but there's also no benefit to waiting past it. Once the bond stops earning, every month you leave the money there is a month you're not earning interest anywhere else.

Bonds held less than five years carry a three-month interest penalty

If you cash a savings bond before you've held it for five years, you lose the last three months of interest. This is a real cost. On a bond earning 5% annually, three months of interest is roughly 1.25% of the bond's current value. On a bond earning 0.1%, it's negligible.

This penalty makes early cashing expensive unless you genuinely need the money. If you bought a bond 18 months ago and now face an emergency, cashing it costs you three months of interest—a real loss, but sometimes worth it. If you bought a bond two months ago and want to move the money to a higher-yielding account, wait four more months to avoid the penalty. The math changes based on what rate your bond is earning and what rate you could earn elsewhere, but the rule is simple: if you can wait five years, do.

Cashing during a low-income year reduces your tax bill

The interest you earn on savings bonds is subject to federal income tax, but you get to choose which year you pay that tax. You can report the interest in the year you cash the bond, or you can report it each year as it accrues (called the accrual method). Most people use the cash method—they report nothing until they redeem.

This creates a timing opportunity. If you have a year where your income is unusually low—you took unpaid leave, you're between jobs, you retired mid-year—cashing a bond that year means the interest gets taxed at a lower rate. A bond worth $5,000 that earned $1,000 in interest will be taxed differently if you cash it in a year you earned $30,000 versus a year you earned $80,000. You can't avoid the tax, but you can shift when you pay it. If you're planning to retire next year and expect your income to drop, holding a bond until then and cashing it in retirement can save you money on taxes.

I bonds bought before May 2022 may still earn rates worth keeping

I bonds purchased before May 2022 are earning higher interest rates than I bonds purchased after that date. An I bond bought in late 2021 might be earning 5% or more, while a new I bond today earns a lower rate. If you own an older I bond earning a strong rate and you don't need the cash, holding it longer makes sense—you're earning more than you would in most savings accounts.

Check the current rate on TreasuryDirect.gov. The rate on I bonds changes every six months (in May and November), so an older bond's rate may have dropped since you bought it. If it's now earning less than 1%, cashing it and moving the money elsewhere is worth considering. If it's still earning 4% or higher, holding it is probably the better choice unless you need the money for something urgent.

Series EE bonds may take longer to reach face value

Series EE bonds are may provide to reach face value in 20 years. A $50 EE bond will be worth at least $100 after 20 years, even if interest rates are very low. However, after 20 years, the bond continues to earn interest at whatever the current rate is. That rate is usually very low—often less than 1%.

If you own an EE bond that's past the 20-year mark, check its current value and rate on TreasuryDirect.gov. If it's earning less than 0.5% and you can move the money to a savings account earning 4% or more, cashing it makes sense. The may provide growth period is over, and you're no longer getting any special benefit from holding it. The only reason to keep it would be if you're using the bond for a specific purpose (like education expenses, which can be tax-free under certain conditions) or if you simply prefer to leave it alone.

Bonds you need for education expenses have special tax rules

If you cash a Series EE or I bond to pay for may have access to education expenses—tuition and fees at an accredited school—you may not owe federal income tax on the interest. This is called the education bond exclusion. The bond must have been issued to someone age 24 or older, and the expenses must be paid in the same year you cash the bond.

This rule can make it worthwhile to hold a bond longer than you otherwise would, or to cash it in a specific year to align with education payments. If you have a bond you've been holding and you're about to pay college tuition, cashing it that year could save you significant tax money. Check the IRS rules on Form 8815 to confirm you meet the requirements, because the rules have income limits and other restrictions that may affect whether you may have access to.

Frequently Asked Questions

What happens if I cash a bond before one year?

You cannot cash a savings bond before you've held it for one year. TreasuryDirect will not process the redemption. You must wait at least 12 months from the issue date. After one year, you can cash it anytime, but you'll lose three months of interest if you cash it before five years.

Do I have to report the interest when I cash the bond?

Yes. The interest is subject to federal income tax in the year you cash the bond (unless you meet the education bond exclusion rules). You'll receive a Form 1099-INT from TreasuryDirect showing the interest earned, and you report it on your tax return. Some people report it each year as it accrues instead, but most report it only when they cash.

Should I cash my bond if interest rates have gone up?

Not automatically. If your bond is earning 4% and new bonds earn 5%, holding your 4% bond costs you the difference. But if your bond is earning 4% and you'd move the money to a savings account earning 4.5%, the difference is small. Calculate what you'd earn elsewhere, subtract the three-month penalty if you've held it less than five years, and compare. If the new rate is significantly higher and you've held the bond five years or more, cashing and moving the money makes sense.

Can I cash my bond at a bank?

No. You must cash savings bonds through TreasuryDirect.gov or by mailing a form to the Treasury. Banks do not handle savings bond redemptions. Log into your TreasuryDirect account, select the bond, and request redemption. The money goes to your linked bank account within a few business days.