Savings bonds are a safe, long-term investment that’s backed by the full faith and credit of the U.S. government. They can earn a higher interest rate than many savings accounts, as long as you don’t redeem them too soon.

Knowing when to cash in savings bonds can help you maximize the amount of interest you’ll earn — and it can also keep you from losing interest. Common types of savings bonds include Series EE and Series I, and there are rules regarding when and how they can be redeemed.

What are U.S. savings bonds?

U.S. savings bonds are a type of debt security issued by the federal government. The holder of a bond is essentially loaning the money to the government in exchange for modest —  but guaranteed — returns down the road. These bonds are protected by the U.S. government, meaning that there’s no likelihood of the buyer losing their investment.

This savings strategy came about during World War II when the government needed help financing its military efforts. Savers could buy bonds at the time for less than face value, and the bond would mature over the years until it was worth its face value plus interest.

These days, the money people pay for bonds can be used to provide the government with operating cash flow, or to fund capital investments in projects such as hospitals, schools and highways.

Types of savings bonds

When it’s time to redeem a savings bond, knowing which type you have — Series EE or Series I — is key. Though similar, they do differ.

Series EE Series I
Purchase price Face value Face value
Interest earnings EE bonds issued in May 2005 and after earn a fixed rate of return.
EE bonds issued from May 1997 through April 2005 earn variable rates.
A fixed-rate of return is known when you buy the bond and an inflation rate is calculated twice a year.
Guaranteed earnings timeline Worth at least twice face value after 20 years; continues to accrue interest through 30th year Interest accrues until bond reaches 30 years
Minimum purchase $25 $25 electronic, $50 paper
Maximum amount each calendar year Up to $10,000 in electronic bonds Up to $10,000 in electronic bonds, and using your tax refund up to $5,000 in paper bonds
Issue method Electronically via TreasuryDirect Electronically via TreasuryDirect, and paper bonds are issued by mail with your tax refund
Earliest bonds can be cashed After 12 months After 12 months
Early redemption penalties Before five years, interest is forfeited from the previous three months. Before five years, interest is forfeited from the previous three months.
Tax exemptions Exempt from state and local taxes, federal income tax is deferred until bond matures or is cashed in. Exempt from state and local taxes, federal income tax is deferred until bond matures or is cashed in.

Both Series EE and I bonds have an interest-bearing life of 30 years, yet the way they earn interest is slightly different. Series EE bonds earn a set rate that’s established when you buy them.

The interest on Series I bonds is a combination of fixed and variable rates. The variable rates are adjusted semiannually — in May and November — and are based on inflation, which is determined by the Labor Department’s consumer price index.

Both Series EE and I bonds earn interest every month, and the interest is compounded semiannually.

When to cash in a savings bond

Series EE and I bonds stop earning interest at 30 years, so waiting that long to cash them in ensures you get the maximum return. An additional advantage of waiting at least 20 years to cash in Series EE bonds is they’re required by law to double in value by the 20-year mark.

Like with a high-yield savings account, the longer you leave an interest-earning bond untouched, the more its value grows.

It might be a smart financial move to cash in a bond early, however, if you have fallen on hard times and want to avoid incurring additional debts — even if you haven’t earned maximum interest on the bond yet.

Series EE or I bonds can be redeemed after 12 months. Cashing them in before five years, however, will cost you the last three months of interest.

If you have an electronic version of either bond, you can check its current value on TreasuryDirect under the “current holdings” tab after making an account. If you have a paper bond, however, you can use TreasuryDirect’s paper bond savings calculator.

How to cash in a savings bond

Electronic bonds

Electronic Series EE and I bonds that were purchased from TreasuryDirect can be redeemed on its website when you sign on to your account. The money from cashed-in bonds is directly deposited into your savings or checking account within two business days.

Paper bonds

Paper bonds can be redeemed at some bank branches. Call beforehand to verify your bank provides this service and to make an appointment, if needed.

You can also redeem paper bonds by completing FS Form 1522, and mailing the form and bonds to:

Treasury Retail Securities Services
P.O. Box 9150
Minneapolis, MN 55480-9150

Bottom line

Cashing in your savings bonds can lead to a nice little cash boost, but it’s typically best to wait for your bond to reach its maturity so that you can reap the full rewards. But if you’ve fallen on hard times and are looking for alternative ways to boost your cash flow, cashing in a savings bond may be a good option if it helps you avoid incurring debt.

–Staff writer Liz Hund contributed to a previous version of this article.