Can I Cash a Bond That Hasn't Matured?
Original post by Sue-Lynn Carty of Demand Media
You do not receive the full face value of your government bond until it matures, but you can cash in or sell both types of bonds before they reach their maturity dates. Some government bonds have restrictions regarding how soon you may cash them in after the purchase date.
The federal government sells E/EE and I savings bonds. You cannot cash either type of bond until 12 months after the purchase date. If you cash in or redeem these bonds within five years from the purchase date, you lose three months accrued interest. Also, remember that the face value on the bond is not what you receive when you cash them in before maturity. The government sells these bonds at a discount, typically around 50 percent off the face value.
Redeeming Government Bonds
You can redeem government bonds at any financial institution or with the U.S. Department of the Treasury. If your bond is eligible for redemption and five years have passed since you bought the bond, you receive the purchase price of the bond plus any accrued interest the bond has earned. If you redeem the bonds before five years, then you receive the purchase price of the bond, plus accrued interest and minus the three months accrued interest penalty.
If you want to cash in a corporate bond before its maturity date, you are going to have to sell it, usually through a broker. The broker charges you a fee to cover the cost of selling your bond and to pay the broker’s commission. This is often referred to as a markdown. If the coupon rate is higher than the long-term interest rates when you sell the bond, the bond sells at a premium. If the coupon rate is lower than the long-term interest rates at the time of the sale, the bond sells at a discount.
Selling Corporate Bonds
Selling your corporate bond at a premium means you can possibly sell it for more than what you initially paid. For instance, if the current long-term interest rates are 5 percent and the coupon rate on your bond is 8 percent, investors earn more interest if they buy your bond than if they purchased a new bond at the current interest rates. Selling your corporate bond at a discount means you may end up selling it for less than what you initially paid. If long-term interest rates are 10 percent and your bond coupon rate is 7 percent, investors earn less interest if they purchase your bond rather than buying a new bond at the current interest rates.
- U.S. Securities and Exchange Commission: Bonds, Selling Before Maturity
- TreasuryDirect: Redeem EE/E Savings Bonds and Notes
- TreasuryDirect: Redeem I Savings Bonds
- Investing in Bonds: Bond Investment Strategies: Reasons You Might Sell a Bond Before Maturity
About the Author
Sue-Lynn Carty has over five years experience as both a freelance writer and editor, and her work has appeared on the websites Work.com and LoveToKnow. Carty holds a Bachelor of Arts degree in business administration, with an emphasis on financial management, from Davenport University.