When you were younger, you may have received savings bonds from your grandparents or a relative. Now that you’re older, this gift has matured, and you’re finally ready to redeem the savings bonds either to pay for an expense or reinvest the money. However, maybe you’re uncertain how to cash in saving bonds or how they accrue value.
Learning about this type of investment might help you discover how to redeem savings bonds and retrieve money that is rightfully yours. How do saving bonds work? How are bonds’ worth calculated? And, should you be worried if you misplaced your original savings bonds?
What Are Savings Bonds?
Savings bonds are long-term, low-risk investments that are a debt instrument of the United States government. Created during World War II, they initially allowed citizens to help fund the US government during the war, and were formerly called Series E War Savings Bonds. Since these bonds are guaranteed by the U.S. government, they are generally considered among the safest investments out there.
Series EE vs. Series I
Today, there are two main types of savings bonds: Series EE and Series I. Some paper saving bonds are also classified as a Series E bond. Nowadays, the US government no longer issues printed paper bonds. However, it’s still possible to cash out paper ones received as childhood gifts.
When someone purchases a Series EE savings bond, they pay face value for the bond. Put another way: a purchaser would pay upfront $25 for a Series EE bond valued at $25. It’s possible to buy a bond ranging from $25 to $10,000 in value on the government’s TreasuryDirect website.
This type of bond earns a fixed interest rate that’s indicated at the time of purchase. After the twentieth year, the government can adjust the interest. These bonds are given to one owner and a recipient cannot resell them on a secondary market. The US Treasury guarantees that a Series EE bond (with an issue date of June 2003 or later) will at least double in value after twenty years—making it a low-risk way to earn interest on your money.
Series I savings bonds, which were created in 1998, will not automatically double within 20 years. Instead, they mature for 30 years and include a rate of return that’s fixed for the life of the bond and an interest rate that’s been adjusted for inflation.
To own either of these bonds, a recipient must have a Social Security number and be a U.S. citizen (recipients can live abroad). If a purchaser is not presently a U.S. citizen, they can buy a bond if they possess a Social Security number and are a resident or a civilian employee of the US, whether living inside or outside of the United States.
Since children, who are classified as people under 18 years of age, cannot purchase a bond, an adult can do it on their behalf. In each calendar year, eligible individuals are allowed to purchase up to $10,000 in U.S. savings bonds for themselves and someone else.
How to Calculate the Value of Your Savings Bonds
Before figuring out how to redeem savings bonds, many recipients first want to calculate their bonds’ present value. Thankfully, TreasuryDirect.gov helps bond owners to do just that.
On this government website, a bond recipient or purchaser can see how much their bonds are now worth—by inputting the current date, indicating whether the bond is Series E, Series EE, or Series I, and noting the issue date and serial number. The site will store this information, so users can view it again at a later time.
It’s worth noting here a few things that the Treasury savings bond calculator cannot do, including:
• verifying whether not a user actually owns the bonds
• guaranteeing that a bond is eligible for redemption
• confirming that the serial number is valid
• creating a savings bond based on the information provided
Anyone who’s been issued an electronic savings bond can go to TreasuryDirect.gov and click the “Current Holdings” tab to see how much their bonds are worth.
When to Redeem the Savings Bonds
When a Series EE bond arrives at maturity (after 20 years), the bond owner can redeem the principal on it or let it collect more interest for 10 years beyond the maturity date. To redeem, an owner must hold the bond for at least a year. It’s helpful to remember that, if a savings bond is redeemed within five years of the purchase date, a three-month interest penalty must be paid.
When looking into how to cash in a Series I savings bond, the same penalty of three months’ interest is applied when the bond gets redeemed less than five years from its purchase date.
Series E bonds purchased between 1941 to 1980 no longer earn interest. However, it’s still possible to cash out or redeem savings bonds from these years.
Finding Lost or Stolen Savings Bonds
Sometimes, owners lose printed bonds that were given to them as children. There’s no need to fret. If an owner no longer possesses the physical copy of the bond, they might navigate to TreasuryDirect.gov and fill out an FS Form 1048 —called, “Claim for Lost, Stolen, or Destroyed United States Savings Bonds.” All that’s needed is the issue date, face-value amount, bond number, Social Security number (or the purchaser’s Social Security number), and names and addresses noted on the bonds.
On the Treasury site, it’s also possible to designate whether bonds were lost, stolen, or destroyed (and even attach any remaining pieces of the bond along with the form). By listing a bank account and routing number here, the Treasury can deposit the bond’s value into an owner’s account (once they’re ready to redeem). It’s key to remember that the form must be certified with a bond owner’s signature. Once completed, the form can be sent to Treasury Retail Securities Services, P.O. Box 214, Minneapolis, MN 55480-0214.
Since savings bonds earn interest over time, many recipients opt not to redeem their bonds before that initial five-year mark has passed. Bond owners could wait until the bond reaches maturity or, perhaps, check out a savings-bond calculator to determine how much value might accrue on their still maturing bonds. If a bond owner is pleased with its current value, they might then look into how to redeem the savings bonds for cash.
Redeeming Savings Bonds
Once ready to redeem, savings-bonds recipients have two options. If it’s an older paper savings bond, financial institutions, like a bank, can often cash them out. If the bank will not redeem these bonds, they should be able to point the owner towards an institution that can. It can be helpful, first, to call the bank to make sure it’s able to cash the full amount of a bond’s worth.
Since the interest earned on savings bonds are subject to federal taxes (but not local state taxes), bond owners can either pay taxes every year they have the bond or wait until it’s redeemed (pay all the tax due at the end). After a bond is cashed out, an IRS Form 1099-INT is issued that shows the owner’s taxable gain.
It’s also possible to cash savings bonds through Treasury Retail Securities Services. Bond owners just need to complete FS Form 1522 , submit a certified signature, and mail the bonds (and form) to Treasury Retail Securities Services, PO Box 214, Minneapolis, MN 55480-0214.
Another option is to convert older savings bonds into electronic bonds, by going to TreasuryDirect.gov
and then linking a bank account to cash the existing bonds out. Those in possession of electronic bonds might also go to TreasuryDirect to cash in their securities via ManageDirect. Typically, once redeemed, the bond amount is sent to an owner’s bank account within a few days. It’s possible to contact TreasuryDirect at [email protected] or call them at 844-284-2676 with questions about the bond redemption process.
Investing Your Savings Bonds
Many bond owners opt to reinvest money earned on their savings bonds (once redeemed). If cash is not needed right away, the gains on a bond could go towards another type of investment, where that money might continue to grow.
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