Updated May 2023
When Should I Cash Out My I-Bonds?
By: Will Rahjes
If you own I-Bonds, you might be wondering, “When should I cash out my I-Bonds”?
A new rate was announced on November 1, 2023. The current composite rate on bonds issued from November 2023 to April 2024 is 5.27%. This includes a fixed rate of 1.30% (for the life of the bond) and a semiannual (1/2 year) inflation rate of 1.97%.
Three important things to know when cashing in I-Bonds:
- You cannot cash out your I-Bond for 12 months after purchase.
- New rates are announced in May and November by the Treasury. However, keep in mind that your personal interest rate on I-Bonds resets in 6-month intervals from the purchase of your bonds. For example, if you bought an I-Bond in January your bond resets its rate in July and January each year.
- You lose the last three (3) months of interest when you cash out I-Bonds in the first five (5) years.
Keep in mind:
- If you hear the new rate and you’re not happy with it, there is a decent chance that the lower rate isn’t effective until your personal rate resets.
- If you don’t like the new interest rate and you have owned the bond for less than five years, you probably want to wait three (3) months after your own rate resets before you cash it out. This way you lose three (3) months of the low interest, not the higher rate you liked!
When Should I Cash Out My I Bond purchased from November 2021 – April 2022?
If you bought bonds during this time frame, the bond earned 7.12%, then 9.62%, then 6.48% on its 6-month renewal schedule. The new May rate of 3.38% may make you think “I want to cash out”. In order to keep the rate of 6.48%, you'll want to hold on to the I-Bond for three (3) months at that rate, so that when you cash out, you lose the lower rate and keep all your months of higher rates of interest. Below is a handy chart that shows if you bought an I-Bond in a particular month when is the earliest you should consider cashing out.
When Should I Cash Out My I Bond that was purchased from May 2022 – October 2022?
If you bought bonds from May 2022 – October 2022 that I-Bond earned 9.92%, then 6.48% on its own 6-month renewal schedule. The new rate of 3.48%, as of May, might have you considering your cash-out options. To keep the rate of 6.48%, you'll want to hold on to the I-Bond for three (3) months at that rate, so that when you cash out you lose the lower rate and keep your higher interest rates.
| Purchase Month |
Consider Cashing Out
|
|---|---|
|
May 2022
|
August 2023 |
| June 2022 | September 2023 |
| July 2022 | October 2023 |
| August 2022 | November 2023 |
| September 2022 | December 2023 |
| October 2022 | January 2024 |
When Should I Cash Out My I Bond that was purchased from November 2022 – April 2023?
Bonds purchased between Nov 2022 and April 2023 included a fixed rate of .40% - the first I Bond issued since Nov 2019 to include a fixed rate component. Fixed rates can be attractive to longer-term investors as they guarantee the I Bond earns at least that rate for the life of the bond – even if inflation goes negative.
That being said, the fixed rate component for newly issued I Bonds as of this article is 1.30%. 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.
See this link for all rates in one chart. What if I can’t remember when I purchased my I-Bonds?
Information dealing with the purchase, redemption, replacement, forms, and valuation of Treasury savings bonds is located on the TreasuryDirect.gov website. If you purchased I-Bonds during the timeframes listed above, you would have made the purchase using your TreasuryDirect account. The Treasury does not send any statements or account information.
What is great about I-Bonds is that you can usually see the renewal rate before it affects you and then plan both when you want to cash out, and where you’ll put your money next. If you have questions, give us a call. Although we do not sell I-Bonds we are happy to help you with the decision-making process.
What is great about I-Bonds is that you can usually see the renewal rate before it affects you and then plan both when you want to cash out, and where you’ll put your money next. If you have questions, give us a call. Although we do not sell I-Bonds we are happy to help you with the decision-making process.
Below are some tips if you have purchased I-Bonds, as well as some frequently asked questions regarding the process of setting up beneficiaries or joint owners.
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Tips on Purchasing I-Bonds
- These bonds will not appear on any financial reports from our office. Therefore, keep your account number and passwords in a safe place.
- If you do purchase I-Bonds and you are a client of the Investment Service Center, let us know. Although we cannot facilitate the purchase or redemption, our office monitors the variable rate and will send notifications as we see the rate change.
- Your purchase is a digital investment. You will not receive paper statements or documentation. It’s essential you add a record of these assets to your balance sheet and any other documentation of assets you own. If you have a safe deposit box or another safe place where you store financial documents, we encourage you to make a note of your I Bonds there.
- If you want to avoid probate, you might consider adding a joint owner or beneficiary to holdings in your account (see below).
- Although the interest on the I-Bonds is exempt from state and local taxes, federal tax treatment varies depending on who owns the bonds and how they are used. You can report interest income from your bonds in one of two ways:
- Report the interest in the year you owe it. If you start reporting bond interest every year, you must continue to do so every year after.
- Report the entire amount of interest earned when the bond matures or when you redeem it, whichever comes first.
- You will not be paid interest until the bond is cashed, even if you choose to report the interest in the year it is earned. You will only receive a 1099-INT on cashed or redeemed bonds. If you choose to report yearly, after the bond is redeemed, the 1099-INT will show all the interest earned from the date of issue, and you will need to subtract the interest you paid tax on in prior years from your taxable income.
Q. CAN I ADD A JOINT OWNER OR BENEFICIARY ON I BONDS?
Yes. As long as your funds are in a personal account. First, it’s important to note that unlike financial institutions, TreasuryDirect(Opens in a new Window) beneficiaries and second owners are set for each fund versus the account. For example, if you purchase two separate bonds for $5,000, you must designate a beneficiary or second owner for each fund held in your account. Your options within treasury direct for each personal holding are:
- Purchase individually without any second owner or beneficiary.
- Purchase with someone as the beneficiary (payable on death (POD) to another individual). You can only name one beneficiary per fund purchased. If you wish to have multiple beneficiaries, you need to make individual purchases and name beneficiaries for each fund.
- Purchase with someone else as the secondary owner. If you register as joint owners, you cannot name a beneficiary. However, at the death of one of the owners, the registration can be changed to add a beneficiary. If both you and the second owner (or beneficiary) die at the same time, the I-Bonds will go to your estate.
Q. DOES ADDING SOMEONE AS A SECONDARY OWNER OR BENEFICIARY AFFECT THEIR ANNUAL PURCHASE LIMIT?
No. They can still buy $10,000 in their own account.
Q. HOW DO I CHANGE OR ADD A SECONDARY OWNER OR BENEFICIARY?
Each ownership combination you set up in your TreasuryDirect(Opens in a new Window) account is called a registration. You can have as many registration combinations as you would like, and you can associate any one of your registrations to any bond in your account. Before making changes to a holding, you should review how they are currently set up and see which ones you need changed.
- Login to your account and click “Current Holdings” at the top. Then, scroll down to the Savings Bond section and select “Series I Savings Bond”. You will see a list of your bonds grouped by your existing registrations.
- If you need to make a change, you must create a new registration with the desired ownership combination. For example, let’s say you purchased a $10,000 bond and didn’t list a beneficiary. In such a case, only your name would appear as the registrant. Therefore, you would need to create another registration that includes both your name and your beneficiary’s name.
- To add a beneficiary, click “ManageDirect” and then under the “Manage My Account” section, select “Update my Registration List”. Select “Add a Registration”. Click “Beneficiary”. In this scenario, your personal information would be used in the “First-named registrant” section (as the owner). The “Second-Named Registrant” should be the beneficiary you’ve chosen.
- If you would like to use this new registration for all new bonds you buy in the future, check the “Make this my Preferred Registration” box at the bottom.
- When complete, select “Submit”. This new combination (your name and beneficiary name) will now be shown in your list of registrations. You only need to create a registration once. However, at this point it is not associated with any bonds yet, so you need to change the registration on your existing bonds.
Associate New Registration to Existing Bonds.
- Click on “Edit a Registration” under the “ManageDirect”
- Scroll down to the Saving Bond section and select “Series I Savings Bonds”. You will see a list of your I-Bonds. Check the box for the ones you would like to change. Choose “Select”. You will see a registration box at the bottom of the screen with a drop-down showing the various registrations you have created.
- Select the registration you want to use for this bond (in the above example, this would read as (Your Name TIN#, POD Beneficiary Name). Select “Submit”. If you’re still the primary owner, changing the registration doesn’t trigger taxes.
Q. I HAVE A TRUST BUT PURCHASED BONDS AS AN INDIVIDUAL, CAN I CHANGE OWNERSHIP TO THE TRUST?
Yes, you can use FS Form 1851.(Opens in a new Window) (Opens in a new Window) An entity account for a trust or a business can’t have bonds with a second owner or a beneficiary. It’s important to note that a second owner or the beneficiary must be a person (it cannot be a trust or business).
Q. CAN I REDEEM A PORTION OF A BOND?
No. You must liquidate an entire bond, so if you think that you might need a portion of the bond in the future, you may want to buy two smaller bonds versus one large one.
