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.
Rate this post (1 to 5 stars): 
(Average rating: 5 stars)
(Average rating: 5 stars)
Loading ...
I want to cash a savings bond - what banks will cash them? I was told Bank of America won't cash them. Please adivse.
Sherryl - The information you need is here.
Tom Adams
I have E bonds that have matured. I cannot afford to cash them in right now. Can I convert them to something else?
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
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?
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
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.
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
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.
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
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?
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
How much is the penalty if I cash a 1 year old 50.00 I Bond?
Are bonds FDIC insured?
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