Updated August 3, 2026. Quick answer: you have two ways to report savings-bond interest, and the rule that catches people is that the choice applies to every EE and I bond you own. It is not per bond, and it is not per year. Doing nothing selects deferral.
The two methods
Method 1. Method 1 – postpone reporting the interest until the earlier of cashing the bond, disposing of it, or its final maturity.
Method 2. Method 2 – report the annual increase in redemption value as interest every year.
And the binding rule: “You must use the same method for all Series EE and Series I bonds you own. If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1.”
Two consequences follow immediately. If you have never thought about this, you are on Method 1. And you cannot run Method 1 on some bonds and Method 2 on others to manage a particular year.
Switching, in each direction
To annual reporting: Switching from Method 1 to Method 2 needs no IRS permission, but forces you to report ALL previously unreported accrued interest on ALL your bonds in the year you switch.
That is the sentence to read twice. Switching is free of paperwork and expensive in timing: every year of deferred interest on every bond you hold lands in one tax year. On decades of holdings that can be a very large single-year figure.
Back to deferral: Switching back from Method 2 to Method 1 requires IRS permission – either a statement with ‘131’ at the top under Rev. Proc. 2015-13 section 6.03(4), or Form 3115 as an automatic accounting-method change, with no user fee.
When each method suits which situation
Described mechanically, because the answer is arithmetic about marginal rates:
- Deferral pushes everything into the redemption year, which produces one large lump of interest income in a single year. That is fine if the year is a low one and awkward if it is not.
- Annual reporting spreads it, and is most often used for a bond held in a child’s name where the annual amounts are small enough to attract little or no tax — which is precisely the case where the education exclusion will later be unavailable. Why bonds in a child’s name never qualify.
The event people forget entirely
Final maturity ends the deferral whether you redeem or not. Method 1 postpones the interest until the earlier of cashing, disposing of, or final maturity. A bond sitting in a drawer past its final maturity is producing taxable income in that year and no cash, and no statement will arrive to point it out.
This is a real and common problem, and the fix is a list of your bonds with their final maturity dates.
And at death it becomes a different question
Everything above concerns a living owner. When the owner dies, the deferred interest becomes a choice made once on the final return — and it is a choice that is easy to miss entirely. The election, quoted from the IRS.
General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Fiduciary licensing, executor compensation and intestacy are STATE law and differ change. Rates and limits are year-labelled and move; verify current terms at treasurydirect.gov before acting. Nothing here is a prediction or a recommendation about any investment – it describes how these instruments work.