Selling bonds before they mature isn’t just possible—it’s actually common. Whether you need the cash or want to lock in profits (or limit losses), most brokerage platforms make the process straightforward.
Here’s a step-by-step guide to help you sell your bonds early, using plain language and real examples.
Step 1: Use a Brokerage That Lets You Trade Bonds
Before you can sell a bond, you need to hold it in a brokerage account that supports secondary bond trading. Not all platforms offer this—some may only let you buy and hold until maturity or invest through bond funds.
Top brokerages like Fidelity, Charles Schwab, and E*TRADE allow individual bond sales, often with tools that show live pricing and bid/ask spreads.
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Step 2: Check the Bond’s Market Price and Liquidity
Before selling, look at how your bond is trading in the market. Is it in demand? Are buyers out there? This matters because bond prices can fluctuate based on interest rates, issuer risk, and overall demand.
Use your brokerage’s bond tools to check:
Current price (market value)
Bid price (what someone is offering to pay)
Ask price (what a seller wants to receive)
Spread (difference between bid and ask)
For instance, if your bond’s face value is $1,000 and it’s currently trading at $980, you’d take a $20 hit per bond by selling now.
But if rates have dropped and your bond’s coupon is attractive, you might see a price above $1,000.
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Look at both the bid-ask spread and trading volume. A wide spread or thin trading activity can signal poor liquidity, which may make it harder to get a fair price when selling.
Step 3: Understand Fees and Potential Profit/ Losses
Unlike holding to maturity—where you typically get your full principal back—selling early may result in gains or losses depending on market conditions.
Let’s say you originally paid $1,000 per bond. If you sell at $970, you’re locking in a $30 loss—plus any trading fees. On the other hand, if your bond is now worth $1,030, you can lock in a profit early.
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Compare your bond’s current price to your original cost basis and accrued interest. This gives you a clearer picture of your total gain or loss—not just the sale price.
Step 4: Place the Sell Order
Once you’re ready, go to the “Sell” option in your bond holdings. Choose the quantity (usually in $1,000 increments), review the trade details, and place your order.
In most cases, the bond will be sold to another investor in the secondary market. Some brokerages even let you set a limit order, so you only sell if the price reaches your target.
Sell Bond ETFs Compared to Individual Bonds
Selling bond ETFs is generally quicker and more convenient than selling individual bonds. ETFs trade on stock exchanges just like regular stocks, so you can buy or sell them instantly during market hours. Prices are transparent and updated in real-time.
In contrast, individual bonds are traded over the counter, which means you’ll likely need to go through a broker and accept a bid from another investor. This process can take longer and often involves a spread between what buyers are offering and what sellers want.
If your top priority is liquidity or fast access to cash, ETFs typically offer more flexibility.
Things to Consider Before Selling Bonds Before Maturity
Before you cash out of a bond early, it’s worth understanding how it fits into your overall strategy—and what you might give up by selling. Here are key factors to think about:
Check the current market value: Bond prices fluctuate based on interest rates, credit quality, and demand. Use brokerage tools or FINRA’s Bond Center to check real-time pricing.
Evaluate credit risk and recent news: A credit downgrade or negative news about the issuer can reduce your bond’s resale value. Always check for updates before selling.
Review the yield impact: Selling early could mean giving up future interest payments. Compare your current earnings to the total you’d receive by holding to maturity.
Understand tax consequences; Selling a bond can trigger capital gains or losses, and any accrued interest is taxed as ordinary income. Plan ahead if you're in a high tax bracket.
Align the sale with your financial goals: Consider whether selling supports your larger strategy—such as freeing up cash, lowering risk, or funding a specific goal.
Check for trading fees and markups: Your brokerage may charge a markup or markdown on bond sales, so always confirm the final payout amount before completing the transaction.
FAQ
Most bonds purchased from a bank can be sold early, but you’ll likely need to transfer the bond to a brokerage that supports secondary market trading.
If there's low demand, you may have to accept a lower price to sell your bond, or you might need to wait until market conditions improve.
Yes, government bonds like Treasuries are typically more liquid, meaning there are more active buyers and better pricing in the secondary market.
There’s no formal penalty, but you might incur a loss if the bond’s market value has dropped, or pay a fee depending on your broker.
Most bonds trade in minimum increments of $1,000, so you can sell part of your holding as long as it meets that minimum requirement.
The profit or loss from selling a bond is generally treated as a capital gain or loss, while interest income is taxed separately as ordinary income.
Yes, municipal bonds can be sold on the secondary market like corporate bonds, but liquidity may vary based on the issuer and credit quality.
Yes, the buyer pays you accrued interest up to the sale date, which is included in your proceeds when selling the bond.