To cash in a Series I savings bond without any penalty, you need to hold it for at least five years from its issue date. Before that, two rules apply: you can’t redeem the bond at all during the first 12 months, and if you redeem any time between year one and year five, the Treasury withholds your last three months of interest.1TreasuryDirect. I Bonds Once you pass the five-year mark, you get your full principal plus every dollar of accrued interest.
The First 12 Months: No Access at All
Federal regulation flatly prohibits redeeming a Series I bond during its first year. Under 31 CFR 359.6, bonds issued on or after February 1, 2003, cannot be cashed until at least 12 months have passed from the issue date.2eCFR. 31 CFR 359.6 – When May I Redeem My Series I Bond TreasuryDirect will not process the request, and a bank will not cash a paper bond that hasn’t reached its first anniversary. For that first year, the money is locked.
One narrow exception exists. If you live in an area covered by an official federal disaster declaration, Treasury waives the 12-month minimum and allows early redemption, including for paper bonds lost or damaged in the disaster.3TreasuryDirect. Cashing Savings Bonds Affected by a Disaster Outside a declared disaster, there is no early-access route.
Years One Through Five: The Three-Month Interest Penalty
After the first anniversary, you can redeem an I bond whenever you want. But if you cash out before the bond turns five, Treasury takes back your last three months of interest. The deduction is automatic and happens before the money hits your bank account. Redeem at 18 months and you receive 15 months of interest. Redeem at four years and you receive three years and nine months.1TreasuryDirect. I Bonds
What the penalty costs in dollars depends on the interest rate during those forfeited months. I bonds earn a composite rate that combines a fixed rate with a semiannual inflation adjustment, and that rate resets every six months.4TreasuryDirect. I Bonds Interest Rates If the last three months fall during a low-inflation stretch, the penalty is small. During a high-inflation stretch, it’s larger.
A rough example: a $10,000 bond earning a 4% composite rate produces about $400 a year in interest. Three months of that is roughly $100, which is what you’d forfeit by redeeming early. You can check your own bond’s current value in TreasuryDirect at any time; the value shown for bonds under five years old already has the three-month penalty subtracted.4TreasuryDirect. I Bonds Interest Rates
Timing the Redemption Within the Month
I bonds earn interest starting the first day of the month you buy them, and new interest posts on the first of each following month.4TreasuryDirect. I Bonds Interest Rates Waiting until the end of the month gets you nothing extra. Redeeming on the 2nd pays the same as redeeming on the 30th. If you’ve decided to cash out, doing it early in the month gets the cash to you sooner at no cost.
Softening the Penalty
If you know you’ll need the money before year five, look at the composite rate history. The rate resets every May and November, so you can compare six-month periods and aim to redeem when the trailing three months of interest happen to be from a lower-rate window. This won’t eliminate the loss, but it can shrink the dollar amount.
Year Five and After: Full Interest, No Deductions
On the bond’s fifth anniversary, the three-month penalty disappears. Redeem any time after that and you receive your full principal plus all accrued interest with nothing withheld.1TreasuryDirect. I Bonds
Nothing forces you to redeem at five years. The bond keeps earning interest, compounded semiannually, for up to 30 years from the issue date.1TreasuryDirect. I Bonds At the 30-year mark it stops paying interest, and holding it any longer just leaves money idle.
How to Actually Cash the Bond
Electronic I Bonds
Log into TreasuryDirect, open the ManageDirect tab, and choose “Redeem securities” under Manage My Securities.5TreasuryDirect. TreasuryDirect Help – How Do I You can cash the whole bond or a partial amount, as long as you redeem at least $25 and leave at least $25 behind. The proceeds land in your linked bank account within about two business days. A 1099-INT for the interest becomes available in your TreasuryDirect account in January of the following year.6TreasuryDirect. Cashing EE or I Savings Bonds
Paper I Bonds
Treasury stopped selling paper I bonds on January 1, 2025, but older paper bonds are still redeemable.1TreasuryDirect. I Bonds Most banks and credit unions that handle savings bond redemptions will cash them. Bring a valid government-issued photo ID and sign the back of the bond in front of a bank officer.7Federal Reserve Financial Services. Savings Bond Redemptions Frequently Asked Questions Some banks cap what they’ll cash for non-customers.
If a bank won’t process the redemption, mail the paper bonds with FS Form 1522 to Treasury Retail Securities Services in Minneapolis. For a total redemption value of $1,000 or less, you sign the form and include a copy of your ID. Above $1,000, your signature has to be certified by a notary or an authorized certifying officer at a financial institution.8Bureau of the Fiscal Service. FS Form 1522 – Special Form of Request for Payment of United States Savings and Retirement Securities