You can buy Series I and Series EE savings bonds directly from the U.S. Treasury with your tax refund

When you file your federal income tax return, you can direct part or all of your refund into savings bonds instead of receiving it as a check or bank deposit. The IRS sends the bonds to you by mail, usually within a few weeks of approval. This is one of the few ways to buy bonds without going through a bank or brokerage — you buy them straight from the Treasury.

The two types available this way are Series I bonds (which earn interest that changes with inflation) and Series EE bonds (which earn a fixed rate). Both require you to hold them for at least one year before you can cash them in, and if you cash them before five years have passed, you lose the last three months of interest as a penalty.

Key Takeaways

  • You direct your refund into bonds on your tax return itself — either Form 1040 or through your tax software — by filling in the bond purchase section.
  • Series I bonds protect you against inflation because their interest rate adjusts every six months, while Series EE bonds earn a fixed rate set by the Treasury.
  • The minimum purchase is $25 per bond type, and you can split your refund between both types or put it all into one.
  • Bonds arrive by mail within a few weeks and cannot be cashed in for at least one year; cashing them before five years costs you three months of interest.
  • You will owe federal income tax on the interest when you cash the bonds, though you can choose to report it yearly instead if you prefer.

How to direct your refund into bonds on your tax return

If you file on paper, use Form 1040 (the main federal income tax form). Look for the section labeled "Refund" near the bottom. Below the lines for direct deposit to a bank account, you will see lines for "Series I U.S. Savings Bonds" and "Series EE U.S. Savings Bonds." Write the dollar amount you want to put into each type on the corresponding line. You can buy bonds in any amount from $25 up to the full refund, and you can split the money between both types.

If you file through tax software (TurboTax, H&R Block, TaxAct, or others), the software will ask you how you want your refund distributed. Look for a section on refund options or direct deposit. Most software lets you choose bonds as a destination and will ask you to enter the amount for each type. The software then fills in the correct lines on your Form 1040 automatically.

You do not need a Treasury account or any special setup to buy bonds this way. The IRS handles the entire transaction and sends the bonds to the address on your tax return.

Series I bonds: interest that rises and falls with inflation

A Series I bond earns two parts of interest: a fixed rate that never changes, plus an inflation rate that the Treasury updates every six months (in May and November). The inflation part means your money keeps pace with rising prices. If inflation is high, your interest rate goes up. If inflation drops, your rate goes down, but the fixed portion always stays the same.

The current fixed rate and inflation rate are posted on the Treasury website (treasurydirect.gov), and they change on May 1 and November 1 each year. If you buy a bond in June, you get the rate that was set on May 1. When November 1 arrives, your rate adjusts to the new combined rate, whether that is higher or lower.

Series I bonds are useful if you are worried about inflation eating into your savings. They are less useful if you need the money soon, because you cannot touch them for one year and you lose three months of interest if you cash them before five years.

Series EE bonds: a fixed interest rate for 30 years

A Series EE bond earns the same interest rate for the entire time you own it — the Treasury sets this rate and does not change it. The current rate is posted on treasurydirect.gov and changes on May 1 and November 1. Bonds bought in June will earn whatever rate was set on May 1, and that rate stays the same whether you cash the bond in one year or thirty years.

Series EE bonds also have a special feature: if you hold one for 20 years, the Treasury guarantees it will be worth at least double what you paid for it. This means if you buy a $100 bond and the interest earned is less than $100 after 20 years, the Treasury adds money to bring it to exactly $200. This may provide only applies if you hold the bond for the full 20 years.

Series EE bonds work well if you want predictability and do not want to worry about interest rates changing. They are less attractive right now if Series I rates are much higher, because you lock in a lower fixed rate.

Minimum amounts and how bonds arrive

The smallest bond you can buy is $25. You can purchase bonds in any amount above that — $50, $100, $500, or any other figure. If your refund is $300, you could buy a $100 Series I bond and a $200 Series EE bond, or any other split you choose.

The Treasury mails the bonds to you as paper certificates. They arrive at the address on your tax return, usually within three to four weeks after the IRS processes your return. The bonds come in an envelope from the Bureau of the Fiscal Service (the Treasury's payment division). Keep them in a safe place — they are like cash, and if they are lost or stolen, you will need to file a claim with the Treasury to replace them.

You can also register your bonds online at treasurydirect.gov after you receive them. Registration does not change how the bonds work, but it creates a record in case they are lost or damaged.

When you can cash bonds and what happens to the interest

You cannot cash a savings bond during its first year of ownership, no matter what. After one year, you can cash it at any time, but if you do so before five years have passed, you lose the last three months of interest as a penalty. For example, if you cash a bond after two years, you only get interest for 21 months, not 24.

After five years, you can cash the bond without any penalty. The interest keeps earning for the full 30-year life of the bond if you keep it that long, though most people cash them before then.

To cash a bond, you take it to a bank (most banks will do this) or mail it to the Treasury. The bank or Treasury sends you a check for the current value, which includes your original purchase price plus all the interest earned (minus the three-month penalty if you cashed it before five years).

Tax on the interest you earn

When you cash a savings bond, you owe federal income tax on the interest — not on the original amount you paid, just on the earnings. You do not owe it when you buy the bond or while you own it, only when you cash it.

For example, if you buy a $100 bond and cash it for $115, you owe income tax on the $15 of interest. The bank or Treasury will send you a Form 1099-INT (an interest income form) showing how much interest you earned, and you report that on your next tax return.

You have the option to report the interest every year instead of waiting until you cash the bond. This is called "reporting on an accrual basis." It means you pay tax on the interest each year even though you have not cashed the bond yet. Most people do not choose this option because it means paying tax before they have the money, but it can make sense if you are in a lower tax bracket now than you expect to be later.

Frequently Asked Questions

Can I change my mind after I file my return if I decide I do not want the bonds?

Once the IRS processes your return and sends the bonds, you cannot cancel the order. However, you can cash the bonds after one year and deposit the money in a bank account instead. If you realize before the IRS processes your return that you made a mistake, you may be able to file an amended return, but this depends on timing.

What if I want to buy more bonds than my refund amount?

You cannot buy bonds with money you do not have through the tax return process. You can only use your refund. If you want to buy additional bonds, you can open a Treasury Direct account at treasurydirect.gov and purchase them separately using a bank account.

Do I need to report the bonds on my tax return each year I own them?

No, not unless you choose the accrual basis method mentioned above. Most people do not report anything until they cash the bond and receive the Form 1099-INT showing the interest earned.

Can someone else cash my bonds if I give them the certificate?

If the bond is registered in your name only, the person cashing it will need to prove they are you or have legal authority to act on your behalf. This is why keeping bonds in a safe place matters — they are as good as cash to whoever has them.

What happens if I lose the bond certificate?

Contact the Treasury's Savings Bond Division and file a claim. You will need to provide proof of purchase (like a copy of your tax return showing the bond purchase) and proof of identity. The Treasury can issue a replacement, but the process takes time.