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Understanding U.S. Savings Bonds and Their Basic Structure

Savings bonds are debt securities issued by the U.S. Department of the Treasury. When you own a savings bond, you have loaned money to the federal government, and in return, the government pays you interest over time. These bonds have been available to American savers since 1941, making them one of the longest-running savings products offered by the U.S. government.

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There are two main types of savings bonds currently issued: Series EE bonds and Series I bonds. Series EE bonds earn a fixed interest rate that remains the same for the life of the bond. Series I bonds, introduced in 1998, have a composite rate made up of two parts: a fixed rate plus an inflation rate that adjusts every six months based on changes in the Consumer Price Index.

Savings bonds differ from other investments in several important ways. You purchase them at face value (the amount you pay is what the bond is worth), and they mature over time as interest accrues. For example, if you purchase a $50 Series EE bond, you pay $50 upfront. The bond then grows in value as interest is added, eventually reaching its face value and beyond.

The federal government stopped issuing paper savings bonds to individual investors in 2011. Today, all new savings bonds are issued electronically through TreasuryDirect, an online platform. However, millions of paper bonds issued before 2011 remain in circulation and may still be held by savers or their heirs.

Savings bonds have a holding period requirement. For Series EE and I bonds, you must hold the bond for at least one year before you can cash it. If you cash the bond before five years have passed, you lose the last three months of interest as a penalty. After five years, you can cash the bond without this penalty.

Practical Takeaway: Before attempting to cash a savings bond, determine which type you own and when you purchased it. This information will help you understand what to expect regarding interest earned and any potential penalties for early redemption.

How to Locate and Identify Your Savings Bonds

Many people own savings bonds but have misplaced them or forgotten where they keep them. Finding your bonds is the first step toward cashing them. Bonds may be stored in safe deposit boxes at banks, locked drawers or safes at home, or with other important documents like insurance policies and wills.

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If you purchased bonds through payroll savings during your working years, you may find paperwork from that program in old tax records or employment files. Employers used to offer savings bond purchase plans where money was deducted from paychecks. The bond certificates would have been issued with the employee's name and the purchase date printed on them.

For electronic bonds purchased through TreasuryDirect, you can view your account online by logging in at treasurydirect.gov using your account credentials. Your account will show all bonds currently registered in your name, their purchase dates, current values, and maturity dates. If you have forgotten your login information, the website provides recovery options.

If you inherited bonds from a family member who has passed away, the bonds may be among their personal papers. Look for envelopes, folders, or documents labeled with terms like "savings bonds," "Treasury," or "U.S. bonds." You might also ask the deceased person's financial institution or employer if they have records of bond purchases.

For paper bonds, examine the certificate itself. The bond will clearly state the series (EE or I), the purchase price, the purchase date, and the owner's name. The certificate also includes a serial number. These details are all you need to proceed with redemption.

If you cannot locate physical bonds but believe you own them, the Treasury Department maintains a searchable database called the Treasury Hunt tool. You can search for unclaimed savings bonds by name and state. This resource can help confirm whether bonds exist in your name and provide information needed to claim them.

Practical Takeaway: Check five specific locations this week: your home safe or safe deposit box, old tax returns, payroll records from previous employers, family document files, and the Treasury Hunt database. Creating a list of bonds found will help organize the cashing process.

Understanding Interest Earned and Tax Implications

The amount of interest a savings bond earns depends on its type, the interest rate in effect when purchased, and how long you have owned it. Series EE bonds purchased in 2024 earn a fixed rate of 2.50 percent annually. This rate was set in May 2024 and will remain constant for the life of those bonds. Bonds purchased in previous years may have different rates depending on when they were issued.

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Series I bonds have a more complex rate structure. In 2024, the composite rate is 5.27 percent, consisting of a 1.40 percent fixed rate plus a 3.87 percent inflation rate. This composite rate changes every six months on May 1 and November 1. When you cash an I bond, the rate in effect during the six-month period when you redeem it determines your final interest payment. This means the exact amount you receive depends on the timing of your redemption.

Calculating interest requires knowing when the bond was purchased and its series. For Series EE bonds, interest compounds semiannually. A $50 bond purchased in 2010 at a 1.6 percent annual rate would have grown to approximately $72.50 by 2024. The interest earned—$22.50—is added to the original purchase price to determine the cash value.

When you cash a savings bond, you must report the interest earned as income on your federal income tax return. Many people delay cashing bonds partly because they want to postpone the tax obligation. However, there is a significant option available: you can report interest as you earn it year by year rather than all at once when you cash the bond. This election is made on your tax return and can spread the tax impact over time.

Another tax benefit applies if you use savings bond proceeds for education expenses. If you cash Series EE or I bonds and use the money for qualified education costs—such as tuition, fees, or room and board at an accredited school—you may exclude some or all of the interest earned from your taxable income. This exclusion has income limits and specific requirements, but it represents meaningful tax savings for families funding education.

State and local taxes do not apply to savings bond interest. Only federal income tax applies, which can make savings bonds particularly valuable for residents of high-tax states.

Practical Takeaway: Before cashing bonds, calculate the interest earned using the current value and original purchase price. Then decide whether to report it all in one year or spread it across multiple years based on your personal tax situation. Consult a tax professional if you plan to use bond proceeds for education.

Step-by-Step Process for Cashing Paper Savings Bonds

Cashing paper savings bonds requires following specific procedures to ensure the transaction is processed correctly. The process differs slightly depending on whether the bond owner is living or deceased, and whether the bond has a named beneficiary.

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For paper bonds where the original owner is still living, the most straightforward method is to present the bond and proper identification at a bank. Most financial institutions that offer savings accounts will cash savings bonds for customers and non-customers alike. You should contact your bank in advance to confirm they perform this service, as some smaller institutions may not. When you arrive at the bank, bring the physical bond certificate and a government-issued photo ID such as a driver's license or passport.

The bank teller will verify the bond's authenticity, check that it meets redemption requirements (generally that at least one year has passed since purchase), and process the cash payment or deposit to your account. The entire process typically takes 15 to 30 minutes. The bank will provide documentation of the transaction.

If you do not have a bank account or prefer not to use one, you can cash bonds at certain credit unions or through the U.S. Treasury Department directly. The Treasury Department's Financial Agent in your region can process bond redemptions by mail. You would send the bond certificate with a completed form and supporting documents to the appropriate regional office. This method takes longer—typically two to four weeks—but provides an alternative for those who cannot visit a bank.

For inherited bonds or bonds registered to deceased individuals, the process is more involved. You will need to provide proof that you have authority to redeem the bond, such as