Penalties for not cashing mature savings bonds

Friday, December 24th, 2004
Categorized as: Stinker bonds

Is there a penalty incurred for not cashing in E bonds when they mature?

Tom’s response

There are two penalties.

Once a savings bond matures it no longer earns interest. So you’re losing the money you’d get if you reinvested in a new savings bond that’s earning interest.

Also, the IRS considers the income tax to be due in the year the savings bond matures. If you don’t cash it that year, you won’t get a tax form to help you declare this. When you declare it later, the IRS can penalize you for not declaring it in the right year.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:


On January 25th, 2010 Sherryl Panek said:

I want to cash a savings bond – what banks will cash them? I was told Bank of America won’t cash them. Please adivse.

On January 26th, 2010 Tom Adams said:

Sherryl – The information you need is here.

Tom Adams

On January 26th, 2010 sylvia said:

I have E bonds that have matured. I cannot afford to cash them in right now. Can I convert them to something else?

On January 27th, 2010 Tom Adams said:

Sylvia – There’s nothing they can be converted to. Your statement that you “cannot afford to cash them in right now” is a puzzle to me. When you cash them in, they give you money, they don’t take money away from you.

Yes, you may owe some income tax on the interest the bonds have earned, but the tax will be a small fraction of the amount they give you.

What you can’t afford to do is give the government an interest-free loan, which is what you’re doing now.

Tom Adams

On February 6th, 2010 Wendy said:

My mother passed away in July. She left numerous E bonds that reached maturity between 1996 and 2006. Unfortunately, one of my siblings was not happy with the way she had divided her estate, so he took all of her records from her house. We do not have any old tax returns. How can we tell is she paid tax annually or upon maturity, as required?

On February 8th, 2010 Tom Adams said:

Wendy – this is a tax question, not a Savings Bond question. I don’t know if the IRS can provide you that kind of information or not.

I can tell you that it’s highly unlikely that she paid the tax without cashing the bonds. That’s because the reason people typically hold on to stinker bonds that have stopped paying interest is because they don’t want to pay the tax.

But to be sure, you’d have to ask the IRS.

Tom Adams

On February 13th, 2010 Jeana said:

Can an EE savings bond be worth more than the face value on the bond? I am using a savings bond calculator that is telling me my $50 bonds are worth $69 and the final maturity is in 2019.

On February 15th, 2010 Tom Adams said:

Jeana – Yes. The face value of an EE savings bond just tells you how much you invested (half of the face value). You earn interest on how much you invested. By they time they stop earning interest, Savings Bonds historically have always been worth more than face value.

Tom Adams

On February 19th, 2010 corrine said:

When do EE bonds stop earning interest. I am holding bonds from 1982. I have to change the beneficiary on them. Is there an easy way to do this.

On February 22nd, 2010 Tom Adams said:

Corrine – Interest stops 30 years from the issue date, so yours are good for a couple more years – until 2012.

Here’s how to change the beneficiary.

Tom Adams

On March 1st, 2010 Carrie said:

If you don’t cash in but hold onto E and EE bonds when they mature, what is the penalty, and are there circumstances where the penalty can be avoided? Also, will it be necessary to amend the tax return for the year in which the bond matured, or can the taxes and any penalty be paid upon redempton without having to go back and re-file?

On March 2nd, 2010 Tom Adams said:

Carrie – The information on the top of this page answers most of your questions. The best way to avoid the penalty of not earning any interest is to cash the bond.

Typically the 1099 tax form you receive after you cash the bond only has the year you cashed it, so amending prior tax returns isn’t necessary. But if the 1099 is correctly issued with the year that the bond stopped earning interest, you will have to amend that year’s return.

Tom Adams

On March 13th, 2010 al said:

How much is the penalty if I cash a 1 year old 50.00 I Bond?

On March 15th, 2010 Fran N said:

Are bonds FDIC insured?

On March 16th, 2010 Tom Adams said:

Al – about 50 cents.

Fran – No, Savings Bonds aren’t FDIC insured, they’re issued by the US government. And the government would refuse to back the FDIC before it refused to back Savings Bonds. So what Savings Bonds have is better than FDIC insurance.

Tom Adams

On March 26th, 2010 Ronda Glikin said:

My mother died a month ago. She has her name only on about 80 EE savings bonds that come due from April 2010 to August 2023. How do I change her name to mine? I’m her only beneficiary and personal representative for her estate. When I do so, can I cash in the bonds when they’ve matured, like she did? I don’t have to cash them all in now and pay taxes on the interest, do I?

On March 27th, 2010 Joe Walsh said:

Tom: I have quite a few EE bonds that will mature this year. I am in a higher tax bracket since I retired. What is the best way to lower my tax liability when I cash these bonds in? Should I reinvest the money somewhere else?

On March 29th, 2010 Tom Adams said:

Ronda – No, you don’t have to cash in the bonds now and yes, you can change them to your name. However, depending on the value of your mother’s estate, you will probably have to run all this through a probate court. Then you send in paperwork from that with lots of other documentation to get the name changed. This is fairly complex – details are in my book, which you will find helpful in any case.

Joe – A higher tax bracket since you retired? Are you sure? All the retirement tax strategies I know about (Traditional IRAs, 401K Plans, etc.) are based on the expectation that you’d be in a lower tax bracket after you retire. Not just Savings Bonds, but all these strategies would backfire for someone in a higher tax bracket. I assume that by mature you mean become 30 years old and stop paying interest. If that’s the case, there’s nothing you can do but cash the bonds as they stop paying interest, hold back what you need for taxes, and reinvest the rest.

Tom Adams

On April 14th, 2010 Heather B said:

I found that before I was adopted (paternally), I received an EE bond as a gift (in 11/1981). It also has my mother’s name on it. $50 with a final maturity in 2011. I’m curious if I can transfer this to an I bond, so it can continue to earn interest or if I can use it for tuition to aviod paying taxes on the earned interest. Please advise, and thank you.

On April 15th, 2010 Tom Adams said:

Heather – to transfer it to an I bond you would simply cash in the EE bond and use the money to buy an I bond. You cannot use it for the tuition exemption because you weren’t 24 when the bond was issued – details on that exemption are here.

Tom Adams

On April 27th, 2010 Brittany said:

My mom has bonds that her mother has left behind, but they are in her grandfather’s name. I am pretty sure the bonds are way past it’s maturity date. Is there anyway to get the name switched over to my mom’s name, because both are deceased? Would it even be beneficial for her to cash these bonds? Or are the bonds just regular colorful paper now that is worth nothing? Thank you for your time.

On April 27th, 2010 Tom Adams said:

Brittany – the bonds are still valuable and can be cashed by your great-grandfather’s legal heirs. Depending on how his estate was settled, your mother and the other heirs may be able to use this form.

Tom Adams

On April 27th, 2010 Natalie said:

My mom bought savings bonds for me through automatic debit from each paycheck for about 18 years (1982-2000). We lost the majority of them when our house was demolished years ago. Only about 20 or so are left and have a face value of $200. Can I give the Treasury the identifying numbers of the few I do have and request replacements for the lost/destroyed bonds by giving them this range? Realistically, should I be hopeful they will be able to replace 400+ bonds? Also is the tax penalty we should expect to pay on bonds cashed after maturity directly related to my/her tax bracket?

Thank you in advance for any advice, as I am painfully new to finances.

On April 28th, 2010 Tom Adams said:

Natalie – the information you need to replace the lost bonds is here. Bonds issued in 1982 through 2000 are all still paying interest, so there’s no penalty involved here.

Tom Adams

On May 28th, 2010 Diana Kroells said:

I recently found out that my aunt is holding about 25 E bonds that have matured from 2005 to 2009. She did not need the money and did not know she needed to cash them in the year they matured. If she takes them to the bank to cash them in, how will she know if she will get a penalty for not claiming them in the year they were matured. Will she be notified by the Federal Reserve or the IRS?

On May 31st, 2010 Tom Adams said:

Diana – The bank will not penalize her when she cashes them. She will receive a 1099-INT by the following January listing the amount of interest she earned. If the 1099-INT is mistakenly dated 2010 by the bank, then there will be no penalty.

On the other hand, if the bank knows the rules, the 1099-INT will be dated for the year the bonds matured, and in that case the IRS will be looking for amended tax returns from your aunt for those years.

Tom Adams

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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