Paper Series I bonds: You may be able to cash these bonds in at your bank if it provides that service. You can also cash them in by mail through TreasuryDirect.gov. Complete FS Form 1522 and mail your bonds with the form to the address provided.
Banks and credit unions can redeem savings bonds over the counter. Find out more about becoming an agent and redeeming savings bonds.
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.
TreasuryDirect.gov is the one and only place to electronically buy and redeem U.S. Savings Bonds. We also offer electronic sales and auctions of other U.S.-backed investments to the general public, financial professionals, and state and local governments.
You can cash in a Series I bond after a year—but you'll earn more if you hold onto the bond longer. Paper Series I bonds: You may be able to cash these bonds in at your bank if it provides that service. You can also cash them in by mail through TreasuryDirect.gov.
I Bond Cons
The initial rate is only guaranteed for the first six months of ownership. After that, the rate can fall, even to zero. One-year lockup. You can't get your money back at all the first year, so you shouldn't invest any funds you'll absolutely need anytime soon.
You can sell back your I bonds through the federal government's TreasuryDirect site or by snail mail via its Treasury Retail Securities Services. You can also try cashing in your bonds through your local bank, although not all institutions offer the service.
Once a Series I bond is five years old, there is no interest penalty for redemption.
However, depending on future I bond rates — compared to other options for cash — it may be worthwhile to keep your I bonds beyond just one year and three months, Keil said. “You should only cash out when you don't like the interest [rate],” he said.
If you want to sell your bond before it matures, you may have to pay a commission for the transaction or your broker may take a "markdown." A markdown is an amount—usually a percentage—by which your broker reduces the sales price to cover the cost of the transaction and make a profit on it.
Series I savings bonds are subject to federal taxes.
You will owe the federal government taxes on the interest income you earn during the time you hold I bonds.
I bonds can be a safe immediate-term savings vehicle, especially in inflationary times. I bonds offer benefits such as the security of being backed by the full faith and credit of the U.S. government, state and local tax-exemptions and federal tax exemptions when used to fund educational expenses.
Inflation sucks, but there is one upside: It's still a great time to buy a government-backed I bond. Series I savings bonds are conservative, safe investments that rise and fall with inflation, and they're earning far more than the best high-yield savings account or certificate of deposit.
Backed by the U.S. government, I bonds won't lose value. And if you're comfortable not touching the money for 12 months, the current rate “dwarfs” other options for cash reserves, he said.
Series I savings bonds — commonly known as I-bonds — currently offer an interest rate of 6.89%. While that's lower than the 9.62% they offered during the six months that ended November 1, it's still an attractive rate for savers who would otherwise be putting money into a savings account or CD.
Special Considerations. Series I bonds are considered low risk since they are backed by the full faith and credit of the U.S. government and their redemption value cannot decline. But with this safety comes a low return, comparable to that of a high-interest savings account or certificate of deposit (CD).
Cons of Buying I Bonds
I bonds are meant for longer-term investors. If you don't hold on to your I bond for a full year, you will not receive any interest. You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank.
Interest accrues monthly and is compounded semiannually. SERIES I BONDS ISSUED SEPTEMBER 1998 AND THEREAFTER All Series I bonds reach final maturity 30 years from issue. Series I savings bonds earn interest through application of a composite rate.
If you cash in I bonds, you must report the interest on line 2b of Form 1040 and pay tax to the extent you didn't otherwise include the interest income in a prior year.
You must own the bond for at least five years to receive all of the interest that is due. You cannot cash out an I bond before holding it for a year; if you do so after that point (but before five years), you forfeit three months of interest.
The “I” stands for inflation. The interest rate on I Bonds is directly correlated with inflation. If inflation is high, the interest rate is high. If inflation is low, the rate is low.
Normally, you're limited to purchasing $10,000 per person on electronic Series I bonds per year. However, the government allows those with a federal tax refund to invest up to $5,000 of that refund into paper I bonds. So most investors think their annual investment tops out at $15,000.
The owner of a Series I bond could be hit with years of low inflation or even deflation, and fail to get the doubling in value over time. U.S. Department of the Treasury.
Are I-Bond Purchases Tax Deductible? Unfortunately, the answer is no. Because it's an investment, purchasing an I-Bond is not tax-deductible. While you won't get a tax deduction for purchasing I-Bonds, you won't have to pay taxes on the interest until you cash in your bonds.