Savings Bonds Are Ready To Redeem When They Reach This 'Magic' Number

A savings bond is a government-backed investment that grows over time, making it a popular and safe way to build wealth. Like most investments, the longer you hold, the higher it will grow -– with one major exception. While savings bonds can be cashed out after 12 months, many financial experts recommend waiting at least five years to do so — or even waiting until full maturity at 20 to 30 years. 

The five-year mark can be a magic number in bond investing because cashing out earlier often comes with the penalty of losing the last three months of interest earned. For example, if you redeem a bond after two years, you will only receive 21 months of interest instead of the full 24. By waiting until the five-year threshold, you avoid the potential setback of hundreds or even thousands of dollars, and instead give your money more time to work for you. From there, the decision to cash out becomes a matter of timing and whether you need the cash in the short term, or want to maximize growth by waiting. 

While savvy investors may be tempted to hold onto bonds for as long as possible, it's important to know that they don't grow forever. Depending on the series, U.S.-backed bonds, including HH and EE series bonds earn interest between 20 and 30 years. Meaning, once they hit their maturity date, they no longer collect interest, even if you keep them. Because of these parameters, they can be an effective investment tool for more risk-averse or even retirement investors. One common approach is a ladder strategy, where bonds are purchased at different times so they mature in stages. This can ensure you have access to cash periodically without giving up any long-term growth. However, others might go for the barbell approach in which they split investments between short-term and long-term bonds. This method keeps funds flexible for near-term needs while others continue to work towards their maturity dates.

Ultimately, you should always consider personal considerations and intuition when deciding when you cash out your bonds. For example, there have been increased concerns about the bond market given the 2025 economic climate, and some individuals are questioning whether now is a good time to cash out or move to other investments with greater liquidity. It could also be worth losing interest gains and early penalties if you're in need of cash to pay for a medical emergency or high-interest debt from payday loans or credit cards.