Updated August 2026
Savings bond interest is taxed differently from most other interest income in a few specific ways that catch people off guard — especially when cashing old bonds from an estate. This is general information, not tax advice; confirm your specific situation with a qualified tax professional.
Interest earned on Series EE, I, and E bonds is subject to federal income tax but exempt from state and local income tax. This applies regardless of which state you live in or where the bond was purchased.
Most bondholders use the cash method, meaning interest is reported in whichever year comes first:
That second point surprises a lot of people holding long-matured Series E bonds: the IRS considers the interest realized at final maturity whether or not you've actually cashed the bond. See when savings bonds mature to check a specific bond's status.
When you redeem a paper bond at a bank or through Treasury Retail Securities Services, you'll receive a Form 1099-INT reporting the interest portion for that tax year. For a bond that's compounded for decades, that interest figure — not the total redemption amount — is what's taxable; your original purchase price isn't income.
Interest from EE and I bonds can potentially be excluded from federal tax entirely if the proceeds are used to pay qualified higher-education expenses in the year of redemption, under the Education Savings Bond Program. The main conditions, in broad strokes:
This is a narrow, well-defined program with its own IRS form (Form 8815) — worth raising with a tax professional if it might apply, since the eligibility rules are stricter than they first appear.
When bonds are inherited, the accrued interest generally needs to be reported either on the decedent's final tax return or by whoever redeems the bonds afterward, depending on how the estate elects to handle it. This is one of the more genuinely complex corners of savings bond taxation — an estate holding a stack of matured E bonds from decades ago can be looking at a meaningful one-time 1099-INT, and the timing/allocation choice can matter. This is a good spot to involve a tax professional or the estate's attorney rather than guess.
There's no tax event just from owning a bond or watching it grow in value — tax only comes into play when you redeem it or it reaches final maturity. Checking a bond's current value with the calculator has no tax implications at all.
The rules above reflect the general federal framework for savings bond interest and the education exclusion; they aren't a substitute for professional tax guidance on your specific situation, and tax law can change. See the site terms for the full disclaimer.