Is It Time to Cash in Your Savings Bonds?

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During tough economic times, many people who don’t have an emergency fund are left scrambling for cash to pay everyday expenses. 

If you’ve got a savings bond sitting around, should you cash it in? If the bond has reached its full maturity, there’s no reason not to — you’ll stop earning any interest on a U.S. savings bond after 30 years. 

If the bond isn’t mature yet, the answer depends on your financial situation. 

“If it’s the only financial security you have, then you should cash it in early,” says Troy Harmon, CFA, chief investment officer at Henssler Financial, a Georgia-based financial advising firm. “That’s the beauty of a savings bond — you can quickly turn it into cash.”

When to Cash In a Savings Bond

You’ve Stopped Earning Interest

The decision to cash in a savings bond is a no-brainer if it’s stopped earning interest. But depending on your current financial situation, cashing in your savings bond early may be an option to consider.  

It’s always wise to do some homework on your savings bond before cashing it in. Bonds can be cashed in early starting at the one-year mark for their current value. However, you’ll lose three months’ worth of interest if you cash in before five years have elapsed. 

Cashing Out vs Creating Debt

If you need cash right now, Yusuf Abugideiri, partner and senior financial planner at Yeske Buie, a financial advising firm with locations in San Francisco and Washington, D.C., says redeeming a savings bond is preferable over creating debt. 

“While you would be paying a fee for redeeming your savings bond early, it’s a one-time cost” compared to the recurring cost of interest on a credit card or personal loan,” says Abugideiri. 

Calculating Bond Value

You can calculate the current value of a paper savings bond using the Treasury’s online calculator. It should tell you what the bond is worth today, how much you purchased the bond for initially, the total amount of interest accumulated so far, and your total cash value if you were to cash out now. For electronic bonds, log into your TreasuryDirect.gov site to see their value. 

How to Cash in a Paper Bond vs Electronic Bond

To cash in electronic bonds, you can go to Treasurydirect.gov and follow the instructions from your account. When all is said and done, you should see the funds deposited in your bank account within two business days.

For paper bonds, you’ll need to do a little legwork. So long as you’re the owner of the bond, you can either cash them in at a bank or mail them in to the Treasury department. The former option is the fastest method. You’ll need to bring with you a form of identification as well as the bond itself. Keep in mind, you can’t cash part of the bond — it has to be cashed out in full. 

If you prefer the snail mail route, you’ll need to fill out and sign an FS Form 1522 (download one here) and get your signature certified. Once you’re set with the paperwork, mail it in to the address listed on the 1522 form along with the unsigned bonds you want to cash. 

Pro Tip

Avoid cashing in your savings bond early, unless you need cash now or plan to invest the money in an account that earns higher interest. 

Alternatives 

If you have bonds but are unsure if you should redeem them over other assets, it’s worth taking a look at your alternative.

For instance, pulling cash from a certificate of deposit is an option, although you could face a penalty of several months’ interest if it hasn’t reached maturity. 

Abugideiri and Harmon say sourcing emergency cash via a personal loan or credit card is the least attractive option and likely the highest cost since both tend to charge higher interest rates.

“The best way to access cash is to source it at the lowest cost available. Low interest rates give you very little incentive to save right now,” Harmon says. “Selling a bond you already hold is quicker and less expensive than these other options.”

Close to Retirement 

Many people who save for retirement rely on a 401(k) plan or a traditional IRA account — made up of a variety of investments — to build their funds over time. Bonds are usually folded into the mix of a retirement portfolio and can be leveraged under the right circumstances. Individual savings bonds, in particular, can serve as supplemental retirement income, depending on your financial situation. 

Although the return will be relatively low, Harmon recommends cashing in bonds closest to maturity to satisfy any dire financial needs. “Bonds are highly liquid, so they are unlikely to have lost significant value relative to other asset classes,” Harmon says. Therefore, if you need cash flow to cover emergency expenses and do not have an emergency fund, go ahead and cash in your savings bond before even considering touching your 401(k). The return on investment with a 401(k)s compounding interest is exponentially higher than what you can earn from a savings bond.   

In Conclusion

Don’t wait on cashing in your bond if it’s reached maturity and stopped earning interest. 

If you need to cash your savings bond early, you’ll lose out on some long-term gains, but you’ll still get back more than the initial face value. And in times of financial crisis, experts agree cashing in your bond is better than dipping into your 401(k) early or taking on debt.

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