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I BEGAN BUYING Series I savings bonds in 1999. At the time, you could purchase them at a local bank and receive paper bonds. Amid 2022’s spike in inflation, those early bonds that I bought were—for a six-month stretch last year—yielding an annualized 13.08%. Not bad for a low-risk investment.
One drawback to buying savings bonds: the limit on how much a person can purchase each year. When I began buying Series I savings bonds, the maximum was $30,000 per person per year. The current annual limit on I bond purchases is now $10,000 per person, plus $5,000 more if you buy I bonds using a tax refund.
While paper savings bonds were once easy to buy, redeeming them is another story. Many banks have stopped cashing them, and the ones that still do have stringent requirements. You typically need to have an account at the bank and to have been a customer for more than a year. In my experience, most banks won’t cash more than $1,000 in bonds at any one time.
I recently visited my local bank to cash a few EE bonds that had reached their final maturity. The bank’s staff told me they no longer cashed savings bonds. Fortunately, I have an account at another major bank and was able to redeem them there.
When I went to that bank recently to cash a bond, I encountered a new teller. After a series of mistakes, she assured me that everything was okay. Then she handed me my deposit slip. It only showed the amount of a check I deposited—but not the proceeds from the bond. The bank manager then straightened everything out. Still, the whole experience was a little unsettling.
It’s likely simpler to redeem paper bonds by sending them to Treasury Retail Securities in Minneapolis, a service of the Federal Reserve. Along with the bonds, you have to fill out FS Form 1522. If the bonds are worth more than $1,000, the form will need to be signed in front of a notary or certifying officer.
I used this service when some HH bonds matured because banks aren’t permitted to cash them. In my case, a medallion stamp was required. The first bank branch I visited didn’t have this particular stamp, so I had to go to another branch 10 miles away. It took me the better part of the day to get the form stamped, and then mail the form with the bonds from my local post office.
In the not-too-distant future, the U.S. Treasury will handle all savings bond transactions through its TreasuryDirect website. Banks will no longer handle redemptions, just as they haven’t sold savings bonds for some time.
One improvement that the TreasuryDirect’s website has made: adding its savings bond calculator, which can give you the value of your paper bonds. It’s more convenient than the old method of figuring out the value of your bonds using redemption tables.
To those of you who plan to cash in paper bonds at a bank, it’s a good idea to call ahead and see if the branch still provides that service. And if it does, check your bonds’ value using the TreasuryDirect calculator beforehand—so the teller credits you with the right amount.
Marjorie, thanks for this and what a hassle. I have thought the TD website is a bit of a pain, but not in comparison to what you describe.
Thanks for reading Andrew. Agree about TD website. Converting paper to electronic is way to go, and hopefully will make it easier for executors of estate.
I have a small EE bond that was gift from my grandparents the day I was born. It matured long ago, but I’ve always held into it as a sort of keepsake. Of course it’s not framed or anything, just in a box with other stuff.
Now I’m thinking cashing it in could be something to do when I’m bored and have nothing else to do for a few days. Then again, I could leave it to give my heirs something to do. Something to think about.
My sister was the executrix of a family estate. Among the assets she had to deal with were hundreds of savings bonds accumulated over five or six decades. She found that regular banks had abandoned the practice of managing savings bond redemptions. Although she was on the East Coast, she found the only avenue to redeem the bonds was to work with a governmental office thousands of miles away, in Minnesota. It was an arduous task, because the actual date each bond was issued is so important, and the recordkeeping documentation she had to provide was extensive. Moral: Factor in the costs of exit as well as the costs of entry and the interest.
For those who inherit savings bonds from deceased family members the earned taxable interest income belongs to the taxpayer who owned the bonds at their date of death. IRS Pub 550 describes the hoop jumping to get the income on the proper tax returns.
In the vein of simplification it is in my opinion better, when possible, to encourage action by the family member who own US bonds to get their bonds redeemed when the bond maturity occurs and/or while original owner is still alive. This issue may be more common with paper bonds than electronic bonds.
For many low taxable income elderly taxpayers redeeming bonds there may be low or no income tax from redeeming and reporting the taxable interest from savings bonds as they are past their human capital earning years. Persons inheriting and getting the 1099-Int upon redemption the may be in a higher tax bracket and professional fees to properly report would likely not be cost justified.
Often the technically correct tax reporting for small amounts of interest income is not worth the effort and the person cashing the bond just reports the full amount of the interest from the 1099-Int and pays any associated tax.
Pub 550 example –
Example 2. Your uncle died and left you a
$1,000 Series EE bond. You redeem the bond
for $1,000.
Your uncle paid $500 for the bond, so $500
of the amount you receive upon redemption is
interest income. Your uncle’s executor included in your uncle’s final return $200 of the interest that had accrued at the time of your uncle’s death. You have to include only $300 in your income.
The bank where you redeem the bond gives
you a Form 1099-INT showing interest income
of $500. You also receive a Form 1099-INT
showing taxable interest income of $300 from
your savings account.
You file Form 1040 or 1040-SR and complete Schedule B (Form 1040). On line 1 of
Schedule B (Form 1040), you list the $500 and
$300 interest amounts shown on your Forms
1099. Several rows above line 2, you put a subtotal of $800. Below this subtotal, enter “U.S.Savings Bond Interest Previously Reported” and enter the $200 interest included in your uncle’s final return. Subtract the $200 from the subtotal and enter $600 on line 2.
In a perfect world I hope my wife and I will have redeemed our US savings bonds with any large amounts of embedded taxable income before we are gone and not add a tax reporting burden to those who follow us.
it seems to me that another way to simplify the posthumous transition of savings bond ownership to a non-spouse would be to make sure the bonds are registered electronically, name a beneficiary, and leave instruction for the beneficiary to have the bonds re-issued in their name upon inheritance. that re-issuing should trigger a 1099-INT for the amount of accrued interest to the estate of the deceased previous owner.
Thanks for this post. As a senior citizen, I will forthwith cash in my old paper EEs to prevent the potential heartburn to my heirs.
Yikes, what a headache. We redeemed around $6k of EE bonds at a local bank a few years ago, and experienced none of these obstacles. But it doesn’t surprise me that now a few years further down the road the process of cashing bonds locally has gotten much more arduous. Makes me glad I converted all my paper bonds to electronic form via Treasury Direct a few years ago. I’ve cashed several bonds thru TD, and had the money in my bank account within a few days, as well as easy access to the requisite form 1099-INT the following January. The process of conversion is slow and cumbersome, so best do it well before you actually intend to cash the bond so the time lag isn’t so much of a problem.
I had a much easier, quicker and satisfying experience this past December. I went to my local branch of a national bank to cash my EE bonds that had matured and therefore were not accumulating any more interest. I had to fill in a form and sign it, then return it to the teller. She had to call their HQ office for approval of the amount. Meanwhile I talked with the branch manager who offered me a much better interest rate on “new money”. Within 15 minutes I had my new account with the funds from the EE bonds, paying a currently competitive money market rate. No mailing off to Minneapolis and waiting weeks or months for results while earning no interest. Sounds to me like you just need to do business with a better bank.
David…The bonds I sent to Minneapolis were HH bonds as noted. Banks are not permitted to cash them. They must be mailed to Treasury.
Glad your banking experience was a good one.
after my Dad passed away in 1977, I tried to cash in a few EE bonds, in his name, via a power of attorney, which was less than a year old. The bank teller flat out refused and I asked to speak with the manager, he also refused, and told me I had to , ” go on the internet , or something,”. etc.He wouldn’ t honor the POA, who knows why. I was a longtime customer of the bank, also. Both the teller were men about my age, spoke perfect English and so forth, so there was no language barrier. Frustrated, but undeterred, I walked across the street to a larger bank, where I had no money, the teller, a young woman of perhaps 18 years old, had a strong Spanish accent, and combined with my hearing loss, it made communication a bit difficult, she told me she had emigrated from Puerto Rico only 6 months prior and had been at the bank only a couple of months, and she was the only person in her family whom could speak English. However, within 10 minutes, after showing her my i.d., and the POA, the nice, intelligent and helpful young lady completed the transaction, with no fuss. The next day, I transferred all of the money from bank A, whom couldn’t understand a POA, and who were a bit rude, also. to the Bank B, where a very recent, much younger immigrant was far more helpful and informed.
Glad you got your transaction taken care of. Just FYI, a POA dies with the grantor. So technically Bank A did the right thing in refusing to honor the POA you presented.
My brother-in-law found four Series EE bonds in his parents’ safe deposit box after both had passed away. They were in the name of his father with his mother named in case he had passed. He gave my wife two and kept two, and at maturity we did the required paperwork. We mailed the package to the Minneapolis PO box, and waited. After a few months they both received the expected deposit in their respective checking accounts. It was clunky but it worked. Definitely use the on line accounts, going forward.
Yes, Mark..clunky is a good description but glad it all worked out well.
Marjorie, you forget to mention that Treasury Direct, after finding a bank and a medallion stamp, request that you USPS mail the bonds to them in Minneapolis and then wait for processing. I cannot rely on the USPS to deliver a first class letter across town. I called Treasury Direct and they refuse to accept bonds hand delivered to their office. UPS will insure a package of bonds for a very high price and Fedex refused to insure the bonds. If you have figured out a way around this problem I would like to know.
Shirl59…I did note that I had to take the bonds to the post office, along with the required form and unsigned bonds. I had no problem sending them..it was all the preparation that was a bit bothersome. If you are apprehensive about mailing them you can send them via certified mail and request a return receipt from post office.
Good Luck
By the way, no need to insure. Since the bonds are unsigned it would be difficult for anyone to redeem them.