You can redeem an I bond starting 12 months after its issue date, but cashing it in before the five-year mark costs you the last three months of interest. Wait past five years and you collect the full value with no deduction. The mechanics differ depending on whether your bonds are electronic in TreasuryDirect or paper certificates, and the interest becomes taxable in the year you cash out.
The 12-Month Lockout
Federal regulations prohibit redemption during the first 12 months after the issue date. Under 31 CFR § 359.6, any I bond issued on or after February 1, 2003, cannot be cashed until at least one full year has passed.1eCFR. 31 CFR 359.6 – When May I Redeem My Series I Bond Buy a bond in March 2025 and the earliest you can touch that money is March 2026. No partial withdrawals during this window, no hardship exception you can request on your own.
One narrow exception exists. Under 31 CFR § 359.70, the Treasury has authority to waive program provisions to relieve unnecessary hardship, and it has used that authority to lift the 12-month lockout for bondholders in federally declared disaster areas.2eCFR. 31 CFR Part 359 – Offering of United States Savings Bonds, Series I – Section: 359.70 In July 2025, for example, the Treasury waived the holding period for savings bond owners affected by severe storms and flooding in parts of West Virginia.3TreasuryDirect. Fiscal Service Aids Savings Bonds Owners in West Virginia Affected by Severe Storms Outside of these specific declarations, the one-year rule is absolute.
The Three-Month Interest Penalty
Cash an I bond anytime between 12 months and five years after the issue date and you forfeit the last three months of interest. The Treasury applies the penalty automatically, so you never see the deducted amount on a statement. A bond cashed at 18 months pays only 15 months of interest.4TreasuryDirect. I Bonds
Values shown in TreasuryDirect and the Treasury’s online savings bond calculator already reflect the penalty for bonds less than five years old, so the number you see is the number you’ll receive. Once a bond reaches its fifth anniversary, the penalty drops away and you collect every dollar of accrued interest.4TreasuryDirect. I Bonds
Whether the penalty is worth eating depends on the rates in play. In high-inflation periods the three-month forfeiture can be real money; in low-inflation stretches, it may barely register. Run the numbers in the Treasury’s calculator before deciding to cash in early.
Best Time of Month to Redeem
I bonds earn interest starting on the first day of the month they were purchased. Interest accrues monthly, and twice a year the Treasury compounds it by rolling the prior six months of earnings into the bond’s principal.5TreasuryDirect. I Bonds Interest Rates Because interest posts on the first, cashing on February 5 versus February 25 makes no difference. You’ve already captured February’s interest either way, and March’s won’t post until March 1. If you’re going to redeem, the first of the month is the cleanest day to do it.
Cashing Electronic I Bonds in TreasuryDirect
Electronic bonds are the simplest to redeem. Log into your TreasuryDirect account, go to ManageDirect, select the bond, choose a full or partial redemption, confirm the linked bank account, and submit the request.6TreasuryDirect. Redeem Savings Bonds Funds typically arrive in your bank account within a few business days.
Partial redemption is one of the genuine advantages of electronic bonds. You can cash any amount so long as you leave at least $25 in the bond.7TreasuryDirect. Converting EE or I Paper Bonds to Electronic Bonds Useful if you need some cash but don’t want to trigger taxes on all the accrued interest at once.
Cashing Paper I Bonds
Paper bonds give you two options: bring them to a bank, or mail them to the Treasury. Neither is as fast as the electronic route.
At a Bank
Some banks and credit unions will redeem paper savings bonds, but they aren’t required to. Federal Reserve guidance leaves the decision to each institution, and many now require you to have been a customer for at least 12 months before they’ll cash bonds on your behalf.8Federal Reserve Financial Services. Savings Bond Redemptions Frequently Asked Questions Call ahead. Bring valid photo identification, and expect possible limits on how much a single branch will redeem at once.
By Mail to the Treasury
If no local bank will handle the redemption, fill out FS Form 1522 and mail it with the original bond certificates to Treasury Retail Securities Services at P.O. Box 9150, Minneapolis, MN 55480-9150.9TreasuryDirect. FS Form 1522 – Special Form of Request for Payment The form asks for bond serial numbers, issue dates, the owner’s Social Security number, and the routing and account numbers where the payment should be deposited.
Signature requirements depend on the size of the redemption:
- $1,000 or less in total redemption value: sign the form and enclose a copy of your driver’s license, passport, state ID, or military ID. No certification needed.
- More than $1,000: sign the form in the presence of a notary public or other authorized certifying officer.9TreasuryDirect. FS Form 1522 – Special Form of Request for Payment
Authorized certifying officers include notaries, officers at banks and credit unions, commissioned military officers, and U.S. court clerks, among others.10TreasuryDirect. Signature Certification Notary fees are state-regulated and typically run between $2 and $25 per signature.
Plan for processing time. Mailing paper bonds to the Treasury for redemption currently takes at least six weeks from the date they receive your package. Confirm your routing and account numbers before you send anything, because a bank error adds more weeks to an already slow process.
After the Owner Dies
If you’re named on the bond as a co-owner or beneficiary, you inherit it directly. You can hold the bond until maturity, redeem it now, or reissue it in your name alone as an electronic bond in TreasuryDirect.11TreasuryDirect. Inheriting as a Co-Owner or Beneficiary If the deceased held electronic bonds in TreasuryDirect, contact TreasuryDirect before doing anything else. The account will be placed on hold while they walk you through next steps.
When no surviving co-owner or beneficiary is named, the path depends on the estate’s size. If the total redemption value of savings bonds and other Treasury securities is $100,000 or less as of the date of death, and the estate isn’t going through probate, a family member can act as a voluntary representative by filing FS Form 5336 with a certified death certificate.12TreasuryDirect. Non-Administered Estates The voluntary representative must be at least 18 and either the surviving spouse, a blood relative, or a legally adopted child. All bond transactions for the estate must be submitted in a single package. Larger estates and those in formal probate go through the court-appointed personal representative.
The Tax Bill You’ll Trigger
I bond interest is subject to federal income tax but exempt from state and local income tax.13TreasuryDirect. Tax Information for EE and I Bonds It’s also exempt from federal estate, gift, and excise taxes, and from state estate or inheritance taxes.
Most owners defer federal tax until redemption, which is the default. Under that method you report nothing until you actually cash the bond or it matures, and the Treasury issues a Form 1099-INT for the year you receive the interest, covering the entire amount earned over the bond’s life. The alternative is reporting interest annually as it accrues, which can make sense for bonds in a child’s name if the child’s tax rate is low now but expected to rise.
Because most people defer, cashing a bond that’s been accumulating interest for 10 or 15 years can produce a noticeable jump in taxable income for that year. If you hold several bonds, staggering redemptions across tax years softens the hit.
For paper bonds cashed at a financial institution, the institution issues the 1099-INT. For electronic bonds redeemed through TreasuryDirect, the form is available in your account by January 31 of the following year.13TreasuryDirect. Tax Information for EE and I Bonds
Using the Proceeds for Education
Under 26 U.S.C. § 135, you can exclude I bond interest from federal income tax entirely if you use the proceeds to pay qualified higher education expenses in the same year you cash the bonds.14Office of the Law Revision Counsel. 26 USC 135 – Income From United States Savings Bonds Used to Pay Higher Education Tuition and Fees The eligibility requirements are strict:
- You must have been at least 24 years old before the bond was issued. Bonds bought in a child’s name don’t qualify; the parent must be the owner.
- Only tuition and fees count, along with contributions to a Coverdell ESA or 529 plan. Room and board, books, and recreational courses are excluded.
- You cannot file as married filing separately.
For the 2026 tax year, the exclusion begins to phase out when modified adjusted gross income exceeds $101,800 for single filers or $152,650 for married couples filing jointly. It disappears entirely at $116,800 for single filers and $182,650 for joint filers.15IRS. Revenue Procedure 2025-32 Claim the exclusion on IRS Form 8815 with your tax return.
If your redemption proceeds exceed your qualified expenses for the year, only the portion of interest that corresponds to the expenses gets excluded. Matching bond redemptions with tuition bills in the same calendar year is what maximizes the benefit.
The 30-Year Hard Stop
I bonds have a total lifespan of 30 years, split into a 20-year original maturity period and a 10-year extension.16eCFR. 31 CFR 359.5 – What Is the Maturity Period of a Series I Savings Bond At the 30-year mark the bond stops earning interest. The Treasury does not extend it or roll it over.
For electronic bonds in TreasuryDirect, the Treasury issues a 1099-INT in the year the bond matures, reporting all previously unreported interest.13TreasuryDirect. Tax Information for EE and I Bonds Even if you forget about the bond, the IRS won’t. You’ll owe tax on the accumulated interest whether or not you’ve actually cashed it out. For any bond approaching 30 years, redeem it deliberately rather than letting it mature into a surprise tax bill.