Here's What Happens if You Cash Too Many Bonds at Once

Bonds offer investors an alternative way to earn interest with their money without having to open a brokerage account and buy stocks. Bonds are a relatively low-risk investment, allowing investors to earn a specific interest rate on their money. Bonds can be a good alternative to savings accounts, which don't offer guaranteed interest rates.

There are many different types of bonds, including corporate bonds issued by companies, municipal bonds, and U.S. Treasury bonds. Corporate bonds account for the largest segment of the U.S. bonds market, followed by U.S. government bonds.

Many bond investors were hurt last year, as the Federal Reserve began hiking interest rates at a rapid pace. As interest rates rise, new bonds being issued offered much higher interest rates than in the past, which made older bonds less valuable.

Before you cash in your bonds, there are a few things you need to know. Here's what happens if you try to cash into too many bonds at once and why you should call your bank ahead of time before trying to cash in physical bonds.

What happens if you cash too many bonds at once

For the sake of simplicity, let's assume you're interested in cashing in your U.S. Treasury savings bonds. One of the easiest ways to do this is through the U.S. Treasury Department's bond website, Treasury Direct.

Treasury Direct says that it doesn't have a limit on the number of savings bonds you can cash or the value of the bonds as long as the bonds meet the requirement for cashing. The site even has a calculator to help you determine how much your bonds are worth.

If you want to cash your physical savings bonds through your bank, you'll need to check with them first to see what their limits are. Banks often set limits for how much money you can withdraw or deposit at any given time, and the same is true for cashing a savings bond.

You may need to contact your bank directly to find out what limits it has set or if you can cash in your savings bonds at all. Some banks, including Capital One, don't cash savings bonds at all; others will only do so if you've had an account at the bank for more than 12 months.

For example, U.S. Bank doesn't list a dollar amount limit to redeem bonds, but it does say that if you're cashing in more than $1,000 in bonds, you should have to have the paperwork certified. This may require you to fill out extra paperwork and sign it in the presence of a notary. The U.S. Treasury stopped issuing most savings bonds in physical form at the end of 2011, so this process should continue to get easier for savings bond holders in the future.

Some banks may allow you to cash in your bonds with them without having an account, but each bank has its own rules, so check with banks beforehand to ensure you'll be able to cash them at a local branch.

Make sure to let your bonds mature

Before you consider cashing in your bonds, you want to ensure they've fully matured. Cashing them in too early will often result in penalties.

For example, if you have government-issued Series I bonds, you should hold them for at least five years to avoid paying a penalty. While you're allowed to cash them in after just 12 months, doing so before five years will result in losing the last three months of interest.

Still, bonds can be a great way to supplement your investment portfolio by accruing interest in a relatively low-risk manner. Just be sure that you know how long you'll need to hold onto them and how your bonds may be affected by inflation.