If you think you can avoid cashing in a Series I bond early and using it directly as collateral, think again. Series I savings bonds, which are indexed against inflation and pay interest, cannot be used to secure a loan. However, savings bonds such as the Series I are like cash, so you can redeem them whenever you want.
You cannot use a Series I bond as collateral, according to Mary Beth Guard of BankersOnline.com. Even if you tried, a bank would never accept this bond as collateral, because U.S. securities are non-transferable. This means that should you default on a loan and use the bond as collateral, the bank would not get its money back since it could not transfer ownership rights on the bond to the bank.
Cashing Series I
Instead of using the bond as cash, you can convert it to cash by going to any bank. Most banks will cash a bond even if you are not a customer. You can then use the cash as down payment on the loan or possibly in lieu of the loan -- thereby saving you interest payments. When you go to the bank, bring photo identification that matches the name on the bond.
Using Other Investments as Collateral
Although your savings bonds are not collateral, you can use other investments to collateralize a loan. However, you will need to give the bank officer time to review your portfolio and value it properly. An investment portfolio can lose and gain money, so the bank will probably only offer a percentage of the portfolio's current value to hedge against a loss.
If you plan to cash a Series I bond to collateralize a loan, try to do this at least five years after the purchase date. Series I bonds carry a three-months interest penalty when you cash them within five years of purchase. Say the I bond is 20 months old. If you cashed it today, you would only get 17 months of interest on it. Also, look for other assets to use as collateral, such as your home or car, that do not interfere with your investments.
- U.S. Treasury: I Savings Bonds Rates & Terms
- BankersOnline.com; Savings Bond as Collateral; Mary Beth Guard; March 2002
- U.S. Treasury: I Savings Bond FAQ
- U.S. Treasury: The Guide to Cashing Savings Bonds
- TreasuryDirect.gov. "Series I Savings Bonds." Accessed Feb. 7, 2020.
- TreasuryDirect.gov. "Tax Considerations for I Bonds." Accessed Feb. 7, 2020.
- TreasuryDirect.gov. "Series I Savings Bonds FAQs." Accessed Feb. 7, 2020.
- TreasuryDirect.com. "Treasury Inflation-Protected Securities (TIPS)." Accessed Feb. 7, 2020.
Russell Huebsch has written freelance articles covering a range of topics from basketball to politics in print and online publications. He graduated from Baylor University in 2009 with a Bachelor of Arts degree in political science.