Saving Bond Maturity

Savings bonds are issued by the US Treasury and other government finance ministries to enable individuals to invest their money with the maximum safety, while contributing to government finance. Each bond has a given maturity - that is, the length of time that it can be (or must be) held. At the maturity date, the government must repay the principal together with any interest due on it. After the maturity date, the government is no longer obliged to pay interest on the savings bond.

For instance Series EE savings bonds have a maturity of 30 years. Though they can be sold before their final maturity, and can be held after it, they will not pay any interest after their maturity date.

Because US Treasury savings bonds do not pay interest to the holder, but accrue it until the bond is redeemed, it is easy not to realize the bond has reached its maturity date. Bond holder should be careful to keep track of savings bond maturity dates and should also ensure they have planned how to reinvest the funds when they redeem the savings bond.

Confusion can occur, as some bonds have had their original maturities extended by up to 30 years. Original maturity is the time taken for a savings bond issued at a discount to its face value to reach its face value. This is set at the time the savings bond is purchased. However, the extended maturity allows the bond to continue paying interest until it reaches final maturity.

Savings bond maturity is often set many years out, making savings bonds a good choice for investors who are saving for longer term needs such as retirement or financing their children's college education. 20 to 30 year maturities are not uncommon. In many cases there are penalties for early redemption of the bonds; for instance US Treasury Savings Bonds have a penalty of 3 months' interest if they are cashed in before they have been held for 5 years.

For investors in US Treasury Savings Bonds, tax on the interest accrued during the life of the bond can be deferred until the bond is cashed in. However, if the bond is not redeemed during its life, tax on the interest becomes payable at the maturity of the bond. This is another good reason why bonds should be redeemed once they reach maturity, otherwise penalties may become payable.