U.S. savings bonds give investors access to guaranteed money. The only downside to this investment type is that the money takes decades to appreciate.
When you're ready to move on to a new type of investment, cash savings bonds you no longer want to help free up potential investment capital.
But be sure you understand the consequences of cashing in your bonds. Check out this guide to understanding when to cash savings bonds.
What Is a Savings Bond?
A savings bond, or series EE bond, is a low-risk savings product that earns interest for a period of 30 years. You can buy these bonds in electronic form from the U.S. Department of the Treasury.
The bonds first came around in 1980 and were available for purchase through local banks. But the treasury department stopped this practice in 2012 in an effort to make more direct contact with customers.
People buy savings bonds or receive them as gifts. Employees sometimes purchase savings bonds through a payroll deduction on the job.
If you've recently purchased a bond through payroll, ask your employer to use a pay stub generator so you can see confirmation of purchase.
Other Types of Savings Bonds
Savings bonds bought as gifts before 1980 were probably Series E savings bonds. They were issued between 1941 and 1980 which means none of them still earn interest.
Not everyone wants a fixed rate on a savings bond. Savings products are notorious for not keeping up with inflation.
The Series I bond was released in 1998 as a series EE alternative. This savings bond pays both fixed and inflation-adjusted rates.
The 30 year earning period still applies which makes them good until 2028. Series I bonds are only available for purchase when you file your federal income tax return.
How to Buy Savings Bonds?
The minimum amount needed to buy a Series I bond is $25 if you buy them electronically. If you buy paper bonds, the minimum purchase amount is $50.
Savings bonds might seem like a great way to get guaranteed returns on large sums. But there are limits on the amount you can invest.
The maximum amount you can invest in electronic Series I bonds is $10,000. You can only buy up to $5,000 in Series I bonds if you buy paper bonds.
Where Does the Money Go?
Buying savings bonds is a way to invest in the federal government. Savings bonds are like a loan to the Treasury Department that pays you interest.
They don't fluctuate in value like stocks and other investment assets. The value only appreciates over time and you can always sell them back for full value plus interest.
How to Determine the Value of Bonds
The TreasuryDirect website offers an online Savings Bond Calculator to help you determine the value of your old bonds. Just enter the type of bond you own, the denomination and the issue date.
If you don't have this information, you can also use the serial number on the bond to look up the value. You might be surprised at how compound interest can increase the value of your bond.
A $1,000 bond issued in 1980 would yield a sum of $3,314.80. Though that sum took 30 years to accumulate, there is no effort needed on your part to triple your investment.
Lost Savings Bonds
If you have savings bonds from years past but lost track of them, you can file a claim with the Department of the Treasury. Fill out a Fiscal Service Form 1048 which allows you to claim lost, stolen or destroyed U.S. savings bonds.
There is also an online option to track down lost or destroyed savings bonds through a service called Treasure Hunt.
How to Cash Savings Bonds
The way you cash savings bonds depends on whether they are paper or electronic. Take a look at this overview of redeeming paper and electronic savings bonds.
Electronic Bonds
To cash savings bonds you bought online, go to TreasuryDirect. There are steps outlined to login to your account and cash out in ManageDirect.
The U.S. Treasury Department deposits the cash value into your account where you can buy more bonds or withdraw the money.
Paper Bonds
Paper bonds have to be taken into a local financial institution to be cashed. Contact the bank before you go to make sure they can handle this type of transaction and what to bring.
Though most financial institutions cash savings bonds, they might require specific types of identification and documentation to handle the transaction. If you can, it's best to visit your own bank.
Some banks won't cash savings bonds from non-account holders or place limits on the amount they can withdraw in one transaction. There is no limit on the transaction if you cashing savings bonds directly with the Treasury Department.
To cash it in, mail your paper savings bond to Treasury Retail Securities Services, P.O. Box 214, Minneapolis, MN 55480-0214.
You'll need to send your social security number and a direct deposit form along with the bond. The Treasury Department uses FS Form 5396 as its direct deposit form which is available for download on the TreasuryDirect website.
Penalties
You have to wait a minimum of one year after purchase to cash savings bonds. If the period is within the first one to five years of ownership, you lost the last three months' interest as a penalty.
You won't incur a penalty if your bond matures and no longer earns interest.
Should I Cash My Savings Bond?
The best time to cash savings bonds is after they no longer earn interest. Savings bonds don't require any effort on your part to earn income.
Bonds don't fluctuate in value making them a top option for the conservative investor. For more information and finance tips, check our blog for updates.
