Selling bonds before maturity is allowed in almost every case, but the mechanics split sharply by bond type. Treasuries, municipal bonds, and corporate bonds trade on the secondary market through a brokerage account, and you can sell any business day. U.S. savings bonds cannot be sold to another person at all; you redeem them through the federal government, and only after holding them for at least 12 months. What you walk away with depends on interest rates, credit conditions, dealer spreads, holding-period penalties, and how the sale is taxed.
Selling Treasuries, Munis, and Corporate Bonds Through a Broker
Treasury notes and bonds, municipal bonds, and corporate debt are marketable securities. You sell them through your brokerage account to another investor or a dealer, not back to the original issuer. The issuer keeps making coupon and principal payments, but those payments now go to the buyer.
Ownership sits in a book-entry system rather than on paper, and your brokerage record is the proof of what you own.1U.S. Securities & Exchange Commission. Book Entry There is no minimum holding period and no government approval. Standard settlement is T+1, so the cash lands in your account one business day after the trade.2Investor.gov. New T+1 Settlement Cycle – What Investors Need To Know
Redeeming Savings Bonds Early
Series EE and Series I savings bonds are non-marketable. You cannot transfer them to another buyer. The only exit is redemption through TreasuryDirect for electronic bonds or by mail for paper bonds.
Both series carry a mandatory 12-month holding period for bonds issued on or after February 1, 2003.3eCFR. 31 CFR Part 351 – Offering of United States Savings Bonds, Series EE4eCFR. 31 CFR Part 359 – Offering of United States Savings Bonds, Series I Before that anniversary, you cannot cash out at all.
Redeem in the first five years and the government subtracts three months of interest from what you receive. Cash a Series I bond nine months after purchase and you get six months of interest, not nine.4eCFR. 31 CFR Part 359 – Offering of United States Savings Bonds, Series I After five years the penalty disappears and you receive the full accrued value.3eCFR. 31 CFR Part 351 – Offering of United States Savings Bonds, Series EE
Partial vs. Full Redemption
Electronic savings bonds in TreasuryDirect can be redeemed in any amount of $25 or more, as long as at least $25 stays in the bond. Paper bonds have to be cashed in full.5TreasuryDirect. Cash EE or I Savings Bonds If you only need part of the money, converting paper bonds to electronic form first preserves the option.
Disaster Waiver
If you live inside a federally declared disaster area and your bonds were lost, damaged, or contaminated, Treasury will waive the 12-month lockup. For electronic bonds under a year old, call TreasuryDirect at 844-284-2676 or submit FS Form 5512 with “DISASTER” written on the envelope. For paper bonds in the same situation, submit FS Form 1048 marked the same way.6TreasuryDirect. Cashing Savings Bonds Affected by a Disaster
When the Issuer Calls the Bond Instead
Callable bonds flip the choice around. The issuer, not you, decides when to end the bond, at a set call price plus accrued interest. Issuers usually call when rates have dropped and they can refinance more cheaply. Once called, future interest payments stop.7FINRA. Callable Bonds: Be Aware That Your Issuer May Come Calling
The call price may sit slightly above face value, but the real cost is reinvestment risk: your money comes back in a low-rate environment. Before buying a callable bond, look at yield-to-call rather than yield-to-maturity, since yield-to-call assumes the earliest redemption and gives you the floor for expected return.7FINRA. Callable Bonds: Be Aware That Your Issuer May Come Calling
What Determines the Price You Receive
A marketable bond sold before maturity almost never trades at face value. The biggest driver is the gap between your bond’s fixed coupon and current market rates. When market rates rise above your coupon, buyers demand a discount, and the price drops. When market rates fall, your higher coupon becomes more valuable, and the price rises. This inverse relationship is the single most important thing to understand before selling.
Credit quality moves prices too, especially for corporate and municipal issues. A rating downgrade pushes yields up and prices down. An upgrade does the reverse. These shifts can be fast during economic stress.
Accrued Interest on Top of the Quoted Price
Bond prices are quoted “clean,” without the interest built up since the last coupon. At settlement, the buyer pays the clean price plus accrued interest, compensating you for the portion of the next coupon you earned. Sell two months into a six-month coupon period and you receive two months of interest on top of the quoted price. Brokerages calculate this automatically, but the settlement total will not match the price you saw quoted.
Dealer Spreads
Most bonds trade in dealer markets, not on a centralized exchange. You typically pay no visible commission; instead, the dealer’s markup or markdown is built into the price. The bid-ask spread is a real cost even though no line item shows it. Treasuries trade at very tight spreads. Thinly traded corporate and municipal bonds do not, and the spread can eat a meaningful share of your return. Getting quotes from more than one dealer helps on less liquid bonds.
How to Execute the Sale
Marketable Bonds
Log into your brokerage, find the bond by its identifier, place a sell order, and wait for T+1 settlement. Cash arrives one business day later.2Investor.gov. New T+1 Settlement Cycle – What Investors Need To Know
Electronic Savings Bonds
Log into TreasuryDirect, select the bond, and request redemption. Funds move to your linked bank account, generally within two business days.
Paper Savings Bonds
For a total redemption value of $1,000 or less, complete FS Form 1522 with your Social Security number, banking details, and signature, along with a copy of your government-issued ID.8TreasuryDirect. How to Redeem Paper Savings Bonds (FS Form 1522) Above $1,000, each signer must appear before a notary or authorized certifying officer who verifies identity and certifies the signature.9TreasuryDirect. FS Form 1522 – Special Form of Request for Payment Mailed forms can take several weeks.
Taxes on an Early Bond Sale
Selling before maturity creates two separate tax questions: how the interest you earned is taxed, and whether the sale itself produced a gain or loss.
Interest earned during your holding period is ordinary income at federal rates. Treasury and savings bond interest is exempt from state and local income tax.10Office of the Law Revision Counsel. 31 U.S. Code 3124 – Exemption From Taxation Municipal bond interest is generally exempt from federal tax, and often from state tax in the issuer’s state. Corporate bond interest has no such exemption.
Capital Gains and Losses
Sell a marketable bond above your cost basis and the profit is a capital gain; sell below and the difference is a capital loss.11Office of the Law Revision Counsel. 26 U.S. Code 1001 – Determination of Amount of and Recognition of Gain or Loss Net capital losses deduct up to $3,000 per year against ordinary income ($1,500 if married filing separately), with any excess carrying forward.12Office of the Law Revision Counsel. 26 U.S. Code 1211 – Limitation on Capital Losses
Watch for market discount and original issue discount. If you bought a bond at a discount on the secondary market, part of your gain on sale may be recharacterized as ordinary interest income rather than a capital gain. Bonds originally issued below face value carry original issue discount that accrues as ordinary income each year even before you sell.13Internal Revenue Service. Publication 550 – Investment Income and Expenses Either can meaningfully change the tax bill on an early sale.
Wash Sales
Sell a bond at a loss and buy a substantially identical one within 30 days before or after the sale, and the IRS disallows the loss under the wash sale rule. The 61-day window centered on the sale date applies to bonds as it does to stocks.14Office of the Law Revision Counsel. 26 U.S. Code 1091 – Loss From Wash Sales of Stock or Securities The disallowed loss is added to the basis of the replacement bond rather than lost forever, but you cannot claim it in the current year.
Bonds Inside an IRA or 401(k)
Selling a bond inside a retirement account triggers no capital gain or loss. The account grows tax-deferred, and the tax event is the eventual withdrawal, taxed as ordinary income in a traditional account. Distributions before age 59½ face a 10% early withdrawal penalty on top of income tax.15Internal Revenue Service. Retirement Plans FAQs Regarding IRAs – Distributions (Withdrawals) Loss harvesting only works in a taxable account.
For sales in a taxable account, expect Form 1099-B reporting the proceeds and Form 1099-INT reporting interest.16Internal Revenue Service. About Form 1099-B, Proceeds From Broker and Barter Exchange Transactions Both feed directly into your return.