Yes, banks will exchange damaged money, but the process depends on how damaged it is and which bank you use
If your cash is torn, stained, faded, or otherwise worn, most banks will swap it for fresh bills at no charge. The Federal Reserve destroys about 3,500 tons of damaged currency each year and replaces it with new bills, so the system is built to handle this. Your bank can either exchange it on the spot if the damage is minor, or send it to the Federal Reserve's Currency Processing Centers if the damage is severe enough that they cannot verify the bill's value themselves.
The catch: the bank needs to be able to confirm what you have is actually U.S. currency. If more than half the bill is missing, or if it is so degraded that neither side can be identified, the Federal Reserve may deny the exchange. If you have less than half a bill, you will need to file a Mutilated Currency Claim with the Bureau of Engraving and Printing instead — a slower process that can take months.
Key Takeaways
- Banks exchange torn, stained, or faded bills for free if at least half of the bill remains and both sides are identifiable.
- Minor damage like small tears or water stains can often be exchanged at the teller window the same day.
- Severe damage — bills that are burned, stuck together, or missing large sections — must be sent to a Federal Reserve Currency Processing Center, which takes one to three weeks.
- If you have less than half a bill remaining, you cannot use the bank exchange route and must file a Mutilated Currency Claim with the Bureau of Engraving and Printing instead.
- Different banks have different policies on what they will accept at the teller window, so call ahead if your bills are heavily damaged.
What counts as damaged money your bank will exchange
Your bank will almost certainly exchange bills that are torn, creased, faded, or stained, as long as the damage does not prevent identification. A bill with a small rip, water damage, or ink stains is routine. A bill that has been through the washing machine, exposed to fire but still recognizable, or partially stuck to another bill can also be exchanged — though the more severe the damage, the more likely the bank will need to send it to the Federal Reserve.
The key rule is the half-bill rule: if you can identify the bill as genuine U.S. currency and more than half of it is present, the bank or Federal Reserve will exchange it. This means you need to be able to see enough of the bill's features — the portrait, the serial numbers, the security features — for someone to confirm what denomination it is and that it is real.
What your bank can do at the teller window
If the damage is light to moderate — a tear along an edge, water stains, fading, or creasing — many banks will exchange the bill right there at the counter. The teller will inspect it, confirm it is real and identifiable, and hand you a replacement. This usually takes a few minutes and costs nothing. Some banks have a limit on how many damaged bills they will exchange this way in one transaction, so if you have dozens of damaged bills, ask the teller what their policy is.
If the damage is more severe — the bill is burned, stuck to other bills, has large sections missing, or is so degraded that the teller cannot confidently identify it — the teller will tell you they need to send it to the Federal Reserve. They will place the bill in a special envelope, note the denomination and damage type, and mail it to the nearest Federal Reserve Currency Processing Center. You will not get cash back immediately; instead, the Federal Reserve will examine it and either approve the exchange (sending the bank a credit) or deny it (sending the bill back to the bank). This process typically takes one to three weeks.
How the Federal Reserve processes severely damaged bills
The Federal Reserve operates 28 Currency Processing Centers across the country. When a bank sends damaged currency to one of these centers, the staff examine the bill under magnification and sometimes use ultraviolet light to verify security features. They are looking for the same thing the teller was: is this real U.S. currency, and is more than half of it present?
If the answer is yes, the Federal Reserve approves the exchange and credits the bank's account. The bank then credits your account or gives you cash, depending on how you made the exchange. If the answer is no — the bill is counterfeit, or less than half is present — the Federal Reserve denies the claim and returns the bill to the bank. The bank will then contact you to let you know the exchange was denied.
You can track the status of a Federal Reserve claim by asking your bank for the reference number. The bank can contact the Federal Reserve directly to check on it, though you cannot call the Federal Reserve yourself to inquire.
What to do if you have less than half a bill
If your bill is burned, torn, or damaged so severely that less than half remains, the bank exchange route will not work. Instead, you will need to file a Mutilated Currency Claim with the Bureau of Engraving and Printing, which is a separate process from the bank exchange.
To file a claim, you must mail the damaged bill (or bills) along with a completed Form 166 to the Bureau of Engraving and Printing's Mutilated Currency Division. The form asks you to describe the damage and explain how it occurred. The Bureau will then examine the bill and decide whether to approve the claim. If approved, they will send you a check for the bill's face value. If denied, they will return the bill to you.
This process is slower than a bank exchange — it can take two to four months — and there is no way to expedite it. You cannot call the Bureau to check on your claim; you can only wait for a response by mail. The Bureau's address is on Form 166, which you can download from the Bureau of Engraving and Printing website.
Why banks sometimes refuse damaged money
Most banks will exchange damaged money, but some have stricter policies than others. A small community bank might refuse to handle severely damaged bills because they do not want to deal with the Federal Reserve paperwork. A large national bank usually has a dedicated process for it. If your bank refuses, you can try another bank — there is no rule saying you must use your own bank to exchange damaged currency.
Banks also sometimes refuse bills that are not actually damaged but are simply old or unusual. A very old bill, a bill printed in a different era, or a bill with an unusual serial number is still legal tender and should be exchanged without question. If a teller refuses to exchange a bill that is not actually damaged, ask to speak to a manager. If the manager also refuses, contact the Federal Reserve directly — they can tell you whether the bill is real and whether the bank is breaking the rules.
What happens to the damaged bills after exchange
Once the Federal Reserve receives damaged currency, it is shredded and destroyed. The paper and ink are recycled or incinerated, depending on the condition. The Federal Reserve does not resell damaged bills or send them back into circulation. This is why the exchange is free — you are not paying for the service of destroying the old bill; you are simply trading it for a new one.
The Federal Reserve prints new currency to replace what is destroyed, so the total amount of money in circulation stays the same. This is a routine part of how the money supply is managed.
Frequently Asked Questions
Can I exchange a bill that is just faded or discolored?
Yes. Fading and discoloration are common and do not prevent identification. As long as you can see enough of the bill to confirm what it is, most banks will exchange it at the teller window without sending it to the Federal Reserve.
What if my bill is stuck to another bill?
Take it to your bank. Do not try to separate them yourself, as you may tear them further. The teller or Federal Reserve can carefully separate them and examine each one. If both bills are identifiable, both will be exchanged.
Do I need to show ID to exchange damaged money?
If you are exchanging it at your own bank, you will need to provide ID as you would for any teller transaction. If you are exchanging it at a bank where you do not have an account, the bank may refuse or may ask for ID. Call ahead to ask the bank's policy.
How long does it take if the bank sends it to the Federal Reserve?
Typically one to three weeks from the time the bank mails it. The Federal Reserve processes thousands of damaged bills daily, so there is a queue. You can ask your bank for a reference number and have them check on the status after two weeks if you have not heard back.
What if the Federal Reserve denies my claim?
The bank will contact you and return the bill to you. You can then file a Mutilated Currency Claim with the Bureau of Engraving and Printing if you believe the bill should have been approved, though this is a longer process and the outcome is not may provide.