In June 2022, as the rate for I-Bonds had risen to an attractive annual interest rate of 9.62%, we posted an article called “Should You Purchase Series I-Bonds?” In that piece, we outlined how I-Bonds work and why some investors might want to take advantage of them.
With inflation slowing down, the relatively high interest rates for I-Bonds have come down too, with a six-month rate of 4.30% applicable from May to October 2023. At this time, other instruments, such as short-term certificates of deposit, money market funds, and short-term bonds may have more attractive yields, although tax treatments should be considered.
So, if you purchased I-Bonds after reading our June 2022 article, should you now consider cashing them out, and if so, when?
First, a little recap from our first article:
I-Bonds have 30-year maturities and pay a fixed interest rate (currently 0.90%, but 0% at the time of the initial article), which stays the same for the life of the bond. I-Bonds also pay an inflation rate based on the Consumer Price Index for all Urban Consumers (CPI-U), which includes the volatile food and energy components. The inflation rate gets reset twice a year at the beginning of May and November.
Here are some important things to remember if you’re looking to cash out:
• For 12 months after purchasing, you cannot redeem your I-Bonds.
• You lose the last three months of interest if you redeem your I-Bond within less than five years.
• I-Bonds accrue interest on the first day of each month.
• Your I-Bond’s interest rate resets six months after your purchase date, not when the new rates are announced in May and November. For example, if you purchased in June, your rate resets in December and June every year.
So, when a new, lower I-Bond rate is announced and you consider cashing out, you must consider when that new lower rate becomes effective for your I-Bonds. You’ll likely want to time your cash-out for three months after your I-Bond’s reset date so that the three months’ interest you lose are of the new lower rate, not the higher rate you were happier with. To accomplish that, you should hold your I-Bond for at least 15 months.
Here’s a chart that outlines when you might consider cashing out your I-Bond, based on your purchase date.
If you have questions about your I-Bonds, please reach out. Your TGS advisor is happy to help!
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FAQs
You'll likely want to time your cash-out for three months after your I-Bond's reset date so that the three months' interest you lose are of the new lower rate, not the higher rate you were happier with. To accomplish that, you should hold your I-Bond for at least 15 months.
Is it time to cash out I bonds? ›
If you want to keep all your good interest and get the most out of your I Bonds you should cash out: after earning 3 months of lower interest and. just after the 1st of the month.
What will the next I bond rate be in 2024? ›
The September I Bond composite rate is 4.28% (US Treasury) which is 2.14% earned over 6 months. The September 2024 I Bond Fixed Rate is 1.30%. The November 2024 I Bond composite rate is projected to go below 3%! Read on to decide if you'd like to continue buying I Bonds, or if you'd rather cash them out.
How do I cash out my Series I bonds? ›
Electronic I bonds can be cashed online through TreasuryDirect.gov. Paper I bonds can be cashed online, or they may be accepted by some banks. If you hold an I bond for less than five years, you'll lose three months' interest.
When should I cash in my Treasury bonds? ›
You can get your cash for an EE or I savings bond any time after you have owned it for 1 year. However, the longer you hold the bond, the more it earns for you (for up to 30 years for an EE or I bond). Also, if you cash in the bond in less than 5 years, you lose the last 3 months of interest.
Do you pay taxes on I bonds when you cash them out? ›
Interest earned on I bonds is exempt from state and local tax but subject to federal tax. The interest is taxed in the year the bond is redeemed or reaches maturity, whichever comes first.
Can I bond lose value? ›
You can count on a Series I bond to hold its value; that is, the bond's redemption value will not decline.
Is there a downside to I bond? ›
Cons of Buying I Bonds
I bonds are meant for longer-term investors. If you don't hold on to your I bond for a full year, you will not receive any interest. You must create an account at TreasuryDirect to buy I bonds; they cannot be purchased through your custodian, online investment account, or local bank.
What is a better investment than I bonds? ›
Unlike I-bonds, TIPS are marketable securities and can be resold on the secondary market before maturity. When the TIPS matures, if the principal is higher than the original amount, you get the higher amount.
How to avoid paying taxes on savings bonds? ›
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent. Only certain qualified higher education costs are covered, including: Tuition.
You just bought a security from the U.S. Treasury. Securities are generally issued to your account within two business days of the purchase date for savings bonds or within one week of the auction date for Bills, Notes, Bonds, FRNs, and TIPS.
How do I cash out my TreasuryDirect account? ›
Log into your primary TreasuryDirect® account. Click on the ManageDirect tab at the top of the page. Click "Redeem securities" under the Manage My Securities heading. On the Redemption page, choose the radio button beside Payroll Zero-Percent C of I and click "Submit".
What happens if you cash a bond before maturity? ›
If a bond is redeemed before five years, the holder loses the last three months of interest. Occasionally, bond owners hold onto bonds after they have reached maturity and are no longer earning interest. These outstanding but unredeemed bonds are called Matured Unredeemed Debt (MUD) .
Should I cash in my I bonds? ›
So if you are a longer-term investor, it may be worthwhile to redeem your old I Bond and re-purchase a new one to lock in the higher fixed rate. Shorter term investors should think about cashing in their I Bond at the 12 or 15-month mark.
What is the expected I bond rate for May 2024? ›
The composite rate for I bonds issued from May 2024 through October 2024 is 4.28%.
What is the best way to cash bonds? ›
Where do I cash in a savings bond? You can cash paper bonds at a bank or through the U.S. Department of the Treasury's TreasuryDirect website. Not all banks offer the service, and many only provide it if you are an account holder, according to a NerdWallet analysis of the 20 largest U.S. banks.
Are I bonds still a good investment? ›
I bonds are a safe investment backed by the U.S. government that protects against inflation with a combination of fixed and variable interest rates. While I bonds offer tax advantages and low minimum investment amounts, they have downsides, including a penalty for early redemption and fixed rates that can be low.
What is the penalty for selling I bonds early? ›
Is there a penalty for cashing an EE or I Bond before it matures? There is a 3-month interest penalty if you cash an EE or I Bond within the first five years from its issue date.
Should I cash in my investment bond? ›
One-off or regular withdrawals will reduce your bond's capital growth potential and could cause the value of your bond to fall below the amount you invested, especially if payments are taken immediately or shortly after the bond is taken out.
Can you take money out of bonds at any time? ›
You can cash in all or part of your Bonds at any time. If you're registered to manage your savings online or by phone, simply log in or call us. Not registered? You can easily withdraw money from yours or your child's Premium Bonds without needing to create an online profile.
