Wilfred Langley Offers Insights on When to Cash Out Your Savings Bonds

Savings bonds, a low-risk investment purchased through the U.S. government, typically take 20 or 30 years to mature. However, if you are facing a natural disaster or other pressing circumstances, you may cash them out as early as a year after purchase or potentially sooner. According to Wilfred Langley, you can cash out electronic savings bonds online easily, while paper bonds might require a visit to a bank or a notary public. To simplify the process, you might consider converting your paper bonds to electronic bonds first.

In terms of cashing options, they vary depending on the bond type. For HH, E, EE, I bonds, or Savings Notes, cashing by mail is a possibility. Although paper bonds are no longer issued, older paper EE or I bonds can be converted to electronic form through TreasuryDirect for easier online cashing. For cashing at a bank, paper Series EE, E, or I bonds can be redeemed at a bank that offers bond-cashing services. Policies differ among banks, so it’s advisable to check specific requirements before visiting. For instance, Capital One and USAA do not cash savings bonds, and U.S. Bank requires a checking, savings, or money market account that has been open for five years.

For those with electronic savings bonds, the process is straightforward: Log in to your TreasuryDirect account, navigate to Manage Direct, follow the link for "cashing securities," select the bond number and amount to redeem, choose the bank account for deposit, and click "submit." Wilfred Langley advises considering potential tax implications, as you may need to pay federal income taxes on the interest earned. However, exceptions exist for EE and I bonds if the funds are used for qualifying higher education expenses. Other taxes, such as estate, gift, and excise taxes, may also apply.

After cashing a bond, you'll receive a 1099-INT form to report the interest on your tax return. This form will be available in your TreasuryDirect account the January following the redemption or from the financial institution that cashed your savings bond. Savings bonds can be cashed in before maturity, provided they have been held for at least 12 months and are valued at $25 or more. Use TreasuryDirect's Paper Savings Bond Calculator to determine the value of a paper bond, or log in to TreasuryDirect for electronic bonds.

Deciding whether to cash in a savings bond requires weighing the potential loss of interest against immediate financial needs. Wilfred Langley notes that cashing in too early may result in forfeiting the last three months of interest if done before the five-year mark. However, there are circumstances where early cashing is advantageous. For instance, matured bonds no longer earn interest, making immediate cashing necessary to avoid value loss due to inflation. Additionally, using the funds for higher education expenses can exempt the interest from federal income tax. Paying off high-interest debt or investing in accounts with higher interest rates may also justify early cashing. Moreover, living in an official disaster area allows for early redemption without meeting the 12-month holding requirement.

In summary, understanding the specifics of your bond type and the available cashing methods can help you navigate the process effectively. Wilfred Langley emphasizes the importance of considering interest earnings and tax implications before making the decision to cash in a savings bond.