You have it right. If you have the Desktop program it is Skip Import. (Enter a Different way is in the Online version). You pick the Interest box. Then the amount goes in box 3 not box 1. You don't have to pick the state. Box 3 tells it that it is exempt from state.
How did you cash them in? You might get a 1099 INT from the bank. I cashed in a lot of bonds in 2022. I got receipts from Wells Fargo. I wasn't expecting to get an actual 1099INT from WF but I did! If you didn't get a 1099 INT you just enter the total interest like a 1099 INT and put the amount in box 3. Yes the interest is taxable for federal but usually not for state.
