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Savings bonds can be a safe way to save money for the long term while earning interest. You might use savings bonds to help pay for your child’s college education, for example, or to set aside money for your grandchildren. Once you redeem them, you can collect the face value of the bond along with any interest earned. While interest on savings bonds is taxable, there are a few things you can do to minimize your liability.
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How Savings Bonds Work
The U.S. Treasury issues savings bonds, most commonly a type of bond known as Series EE bonds. These electronically issued bonds earn interest for up to 30 years. Series EE bonds currently earn a fixed rate that is set when the bond is issued.
You can buy up to $10,000 of EE bonds each year per Social Security number, based on the first named owner on the bond. So, for example, if you were purchasing EE bonds, you could buy $10,000 for yourself and $10,000 for your child, as long as your child was listed as the first owner on that bond.
When Do You Pay Taxes on Savings Bond Interest?
Whether you have to pay taxes on savings bonds depends on who owns it. Generally, you’ll owe taxes on interest earned if you’re the only bond owner. This is also the case if you use your own funds to buy a bond you co-own with someone else.
If you buy a bond but someone else is its only owner, they would be responsible for the taxes due. When you co-own a bond with someone else and share in funding it, or if you live in a community property state, you’d also share responsibility for the taxes owed with your co-owner or spouse.
As for when you’ll pay taxes, the Treasury gives two options for reporting the interest earned:
- Report interest each year as it accrues and pay taxes on it annually
- Defer reporting interest until the bond matures or you redeem it, or if you give up ownership of a bond or become the owner of a reissued bond
According to the Treasury Department, it’s typical to defer reporting interest until you redeem bonds at maturity. With electronic Series EE bonds, the redemption process is automatic and interest is reported to the IRS. Interest earnings on bonds are reported on IRS Form 1099-INT.
Savings bond interest is generally subject to federal income tax but not state or local income tax. Gift, estate or inheritance tax considerations can arise separately depending on how a bond is transferred or owned. For 2026, the federal annual gift tax exclusion is $19,000 per recipient.
Run your numbers with our income tax calculator to better understand your expected tax outcome before filing.
How Can I Avoid Paying Taxes on Savings Bonds?
College spending can provide a way to reduce the federal tax due on the interest that certain U.S. savings bonds earn. But simply cashing a bond to help with school costs does not make the interest tax-free. Eligibility depends on the bond’s issue date, its owner, the taxpayer’s income and the use of the money.
Use the Education Exclusion
A taxpayer who meets the education savings bond requirements may be able to leave some bond interest out of taxable income. This treatment is available for qualifying Series EE bonds purchased after 1989 and Series I bonds. Among the requirements, the person who owns the bond generally must have been at least 24 years old at the time of its issuing.
The amount spent on education also matters. Payments for tuition and certain mandatory school charges can be part of the calculation. Expenses for housing and meals, however, cannot. The expenses must be for the bond owner or the owner’s spouse or a dependent, and they must go to an eligible educational institution. Other education assistance or tax benefits can reduce the expenses available for this purpose.
Income can also limit the tax break, as can filing status. For 2026, the exclusion starts shrinking once modified adjusted gross income exceeds $101,800 for single, head-of-household and qualifying surviving spouse filers, and it disappears at $116,800. Meanwhile, the phaseout for married couples filing jointly runs from $152,650 through $182,650. Note that married taxpayers must file jointly to claim the exclusion; married filing separately does not qualify.
Roll Savings Bonds into a College Savings Account
Redeeming eligible savings bonds and contributing the proceeds to a 529 college savings plan or Coverdell Education Savings Account can also qualify under the education savings bond exclusion. This is not a tax-free rollover in the same sense as moving money directly between retirement accounts. The bonds are redeemed first, and the contribution to the education account must satisfy the applicable requirements for the savings bond interest exclusion.
There are some advantages to either approach. With a 529 college savings plan, you can continue saving money on a tax-advantaged basis for higher education. You won’t pay any taxes on money that you withdraw for qualified education expenses. Contributions to 529 college savings accounts aren’t tax-deductible at the federal level, though some states do allow you to deduct contributions. Plus, if you have multiple children, you can reassign the account to a different beneficiary if one child decides they don’t want to go to college or doesn’t use up all the money in the account.
Coverdell ESAs, in contrast, have lower annual contribution limits, capped at $2,000 per child. You can contribute on behalf of a child up to their 18th birthday. Withdrawals are tax-free when the money goes toward qualified education expenses. But you typically have to withdraw all the funds by age 30 to avoid a tax penalty.
How a Partial Education Exclusion Works
The education tax break may cover less than the full amount of savings bond interest when the taxpayer’s eligible education costs are lower than the amount they receive from redeeming the bonds. This ends up reducing the exclusion, meaning it doesn’t apply to all of the interest earned.
Assume a taxpayer receives $10,000 from redeeming qualifying savings bonds, with $2,000 of that amount representing interest. If the taxpayer has $8,000 of eligible education costs for the year, those costs equal 80% of the redemption proceeds. Applying that same percentage to the $2,000 of interest would produce a $1,600 potential exclusion before any income-based reduction or other limitation applied. The remaining $400 of interest would generally stay taxable.
Taxpayers will use Form 8815 to determine the amount of savings bond interest they can exclude for education purposes. Keeping documentation for both the bond redemption and the education payments can help support the figures reported with the return.
Bottom Line
Minimizing the taxes you pay on savings bond interest may be possible if you have children and plan to use some or all of your savings bonds to help pay for college. When bond funds are used for qualified education expenses or rolled over into a 529 plan or ESA, you may avoid taxes on savings bond interest, or at least some of it However, taxpayers still must meet bond ownership, age, filing-status, expense and income requirements to do so.
Investing Tips
- Consider working with a financial advisor about how much money you should keep in stocks, bonds and cash equivalents. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. From there, you can have a free introductory call with your advisor matches to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Savings bonds purchased on behalf of grandchildren don’t receive the same tax treatment for higher education purposes. Generally, the education exclusion only applies if the grandparent is claiming a grandchild on their taxes as a dependent. If your parents want to help pay for your child’s college expenses, you may encourage them to open a 529 college savings account instead. Then, you can roll the bonds into that account to avoid paying taxes on interest.
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