How To Go About Cashing US Savings Bonds
Most people buy bonds as a long-term investment. When it comes to cashing US Savings Bonds it usually has been such a long time since the bonds were first purchased. It's natural to feel lost about the process.
Our goal is to lay out the steps and point you in the right direction.
The most important consideration when cashing US Savings Bonds is that of liability. If cashed to the wrong person, the financial institution cashing the bond could be liable. This liability is offset only if the U.S. Treasury Department can determine that the loss was not due to the paying agent being negligent.
How does the Treasury Department determine this?
By following rules they lay out on their website and publications that specifically address cashing US Savings Bonds.
Here, we present the highlights of these rules. For details, go to the U.S. Department of Treasury Guide.
Checking Each Bond: The first thing the financial institution cashing your bond is required to do is check each of the bonds you wish to cash. They're looking to see if your bond is either a Series E, EE or I, or a Savings Note. If your bond isn't of this type, then the financial institution will have to refer you to what's called a Federal Reserve Bank (FRB) Bond Processing Site.
Next, the bond is checked for a valid issue date. These are date ranges when the bond was issued. If, for some reason, your bond carries an issue date that does not fall within the prescribed range, you will be referred to the FRB.
Finally, in order to be cashed, your bond needs to be held for the minimum retention period. If your bond was issued on or after Feb. 2003, the minimum retention period is 12 months. If your bond doesn't meet the minimum retention period, you can't cash it. you have to wait till you meet the limit.
Checking Request for Payment: If you are the owner or co-owner of a bond, you need to sign a request for payment in front of the representative of the financial institution.
If you are a parent, beneficiary or legal representative
requesting payment, the financial institution is not obligated to cash your bond. They may refer you to the FRB Bond Processing Site. You will need additional documentation if you're in either of these roles.
Obtain Identification: This is the last step in the process of cashing US Savings Bonds. If you are cashing a bond for yourself then it's best to use a financial institution in which you have an account for at least six months.
All you then have to do then is to produce an acceptable piece of photo ID like a driver's license, state ID card, or several other forms of identification listed on the U.S. Treasury website above.
If you use a financial institution in which you don't have an account, you can still cash your bond with appropriate ID as long as it's for less than $1,000.
Some Things To Consider Before You Cash Your Bond
If you have a bond that is earning a decent interest rate, you may wish to re-evaluate your decision to cash your bond.
What is a decent interest rate?
EE bonds issued between 2010-2011 have not seen an interest rate of more than 1.4%. So if your bond has a rate significantly above that level, you may want to hold on longer.
The other consideration is tax. You owe the IRS tax on your interest income.
When you purchase a savings bond, you have the option to defer the tax burden till you either redeem your bond or your bond finally matures (whichever comes first).
So if you've deferred your taxes and are now cashing your bond, you could be in for a large tax bill. Make sure you get the necessary professional help if necessary before you cash your bond.
To wrap up, we walked through how you would go about cashing US Savings bonds. We talked about the three phases involved: checking the bond, checking the request for payment and obtaining identification.
We also discussed some important things to consider before cashing your bonds the effect of interest rates and taxes.
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Category: Personal Finance