Update, 2/20/24: If you cashed out your I Bonds in 2023, don’t forget to report the interest earned on your bond to avoid IRS penalties. There is no paper 1099, so to obtain it, login to the TreasuryDirect site, click on “Manage Direct”, and then “Manage my taxes” to locate your 2023 1099. If you sold your bond in 2024, you’ll have to do this next year.
Update, 1/1/24: Interest rates and the trailing 3 month interest penalty have now dropped regardless of when you purchased your I Bonds, so you should likely cash them out now, but speak to your financial advisor before doing so!
You can reinvest in I Bonds at the current rates, which would give a bonus fixed rate of 1.3% on top of the 3.94% inflation rate, for a composite rate of 5.27%. The fixed rate for new purchases is added to the inflation rate for the lifetime of the bond, so buying a new bond will be more advantageous than holding onto an old bond without a fixed rate. Or of course, you can find other high-interest options for investment.
Update, 9/1/23: Interest has now posted to I Bonds for this month. If you bought your I Bonds during the months of May, June, November, or December you can now cancel for a penalty of the interest earned from the previous 3 months, which is now fully at the 3.38% rate. See the post below for when you can close accounts opened in other months at the lower penalty rate.
Update, 8/1/23: Interest has now posted to I Bonds for this month. If you bought your I Bonds during the months of May or November you can now cancel for a penalty of the interest earned from the previous 3 months, which is now fully at the 3.38% rate. See the post below for when you can close accounts opened in other months at the lower penalty rate.
Be sure to speak to a tax professional before cashing out your I Bonds!
Originally posted on 7/25/23:
As rising inflation rates shocked the world, I wrote extensively about buying I Bonds as a hedge to protect your assets before the Fed started raising interest rates to create better investment options.
Readers have asked when they should cash out their I-Bonds. That depends on when you bought them.
You must hold I Bonds for at least 1 year and if you liquidate before 5 years, there is a 3 month interest penalty. Right now, everyone should still have earned the previous 6.48% variable rate within the past 3 months.
Here is the date when the 3 month interest penalty will drop to 3.38%, based on when you bought your I Bonds:
- 8/1/23, if you bought I Bonds in the months of May or November
- 9/1/23, if you bought I Bonds in the months of June or December
- 10/1/23, if you bought I Bonds in the months of January or July
- 11/1/23, if you bought I Bonds in the months of February or August
- 12/1/23, if you bought I Bonds in the months of March or September
- 1/1/24, if you bought I Bonds in the months of April or October
To illustrate, I bought a $10K I Bond in December 2021, a $10K I Bond in January 2022, and a $10K I Bond gift in April 2022 that was delivered in 2023 and this is how it looks in my account:
Note that the current value is the amount you would receive if you cashed them out today, after accounting for the 3 month interest penalty.
- The December 2021 issued bond earned 7.12% from 12/1/21-5/31/22, 9.62% from 6/1/22-11/30/22, 6.48% from 12/1/22-5/31/23, and has been earning 3.38% since 6/1/23. After 9/1/23 I can cash that out with a penalty of the interest earned from the previous 3 months, which would be at the 3.38% rate.
- The January 2022 issued bond earned 7.12% from 1/1/22-6/30/22, 9.62% from 7/1/22-12/31/22, 6.48% from 1/1/23-6/30/23, and has been earning 3.38% since 7/1/23. After 10/1/23 I can cash that out with a penalty of the interest earned from the previous 3 months, which would be at the 3.38% rate.
- The April 2022 issued gift bond earned 7.12% from 4/1/22-9/30/22, 9.62% from 10/1/22-3/31/23, and 6.48% from 4/1/23-9/30/23. After 1/1/24 I can cash that out with a penalty of the interest earned from the previous 3 months, which would be at the 3.38% rate.
Interest is paid on the 1st of the month, so you can cash out after that point. For most people, it will make sense to liquidate their I Bonds position right after that interest payment, but you can also wait and see what the new rates will be in November. We should have a good estimate of what they will be by late October and they will likely be slightly lower than they are now. You can add 6 months onto the dates listed above for when the new November rate will fully phase in for your early withdrawal penalty.
It is worth noting that you will owe taxes on the interest earned for the entire term of the I Bond in the year that you close the bond, so you may want to take that into account for when you should liquidate your position. While you won’t owe state or local taxes on the interest, you will owe federal taxes. If you qualify based on income and use them for qualified higher education you may pay no federal taxes as well. Speak to your financial advisor about those decisions.
However, there is also an opportunity cost to hang onto I Bonds until the rate drops again for a lower penalty, or to wait for 5 years to pass. You can then take those funds and invest in other higher-yielding options that are now available, such as T-Bills or earn over 5% APY on high-yield CD account, money market account, or savings account. If you do want to stay in I Bonds, it still can make sense to pay the penalty and buy new ones, due to the 0.9% fixed rate bonus that applies to I Bonds bought by 10/31/23. That fixed rate stays and applies on top of the variable rate for the life of the I Bond.
Will you cash out your I Bonds?
HT: Chaya F, Isaac Goldsmith and Yossi Greenwald, via LinkedIn
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86 Comments On "[Don’t Forget To Report Interest] When Should You Liquidate Your I Bonds Position?"
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I bought a $10k I bond on 04-01-2022 which has earned 6.48% interest (just like yours). Upon the expiration of the 12 month period, does the bond continue earning interest? Or is the money simply held flat by the treasury?
It continues to earn interest based on the inflation rate.
6.48% from 4/1/23-9/30/23.
3.38% from 10/1/23-3/31/24.
TBD variable rate from then on.
So it makes sense to hold on until January if you want to get the 6.48% rate?
Correct.
Dan,
1) thank you for the initial post sharing the I-bonds
2) thank you for really spelling out all the different time brackets/permutations!
At first, I was scratching my head wondering why my April 2022 was still getting 6.48%, then I realized I should read more closely 😀
Good shabbos!
Have you written out a post (pros and cons) on T-bills from the Treasury? I see you referenced them above.
I also see JJ discussing T-bills on Instagram
https://www.instagram.com/p/Cu4-InltV89/
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_bill_rates&field_tdr_date_value_month=202307
Thanks!
The treasury website has a 4.3% for may-Oct 2023
That’s with the fixed rate.
https://www.dansdeals.com/points-travel/banking/last-chance-buy-2021-series-savings-bonds-earning-7-12-interest/
I have a few bonds that someone gave me years ago. What is the best way to cash out on them?
#1) SPEAK TO YOUR ACCOUNTANT FIRST!!!!!!!
#2) See #1.
It cannot be stressed enough – before you cash out bonds, sell stocks, etc., unless you are an expert, speak to your accountant to see how it can affect your tax situation. I have unfortunately seen far too many people lose $5K+ in tax credits because they cashed out bonds/stocks with $2K of interest/gains. It’s extremely painful and frustrating.
Well said!
@Dan, please add this disclaimer in the post after, “Speak to your financial advisor about those decisions.”
For his own protection, he should also put a disclaimer on posts like this that that he is not a licensed financial professional. There are a lot of crazies in the world.
For those who are eligible for Earned Income Credit the rules have changed recently and can change again.
Your investment and Interest income must have been $10,300 or less in 2022. In 2023, it can’t exceed $11,000.
If it does exceed the limit you lose your whole Earned Income Credit.
The limit used to be a lot lower. In 2020 it was $3,650.
6.89% or 6.48%
6.48% (6.89% is with the 0.4% fixed rate that was offered).
I bought an I bond 10/22. When would be the best time to sell for the least amount of penalty?
From the post, “1/1/24, if you bought I Bonds in the months of April or October”
Though by November you’ll also know the new rate and can reevaluate that decision.
Also, I have bonds that were purchased 7/22. When would be the best time to sell for the least amount of penalty? Thank you
“10/1/23, if you bought I Bonds in the months of January or July”
You might want to split it up so each month is separate:
Jan: Oct
Feb: Nov
Etc.
How soon can I expect my funds once I redeem them? Is it a lengthy ordeal involving multiple long calls to the Treasury etc.?
Next business day, two at most. You can do it all on the website, no phone call needed.
I have a paper bond from 2009. Should I cash that out and if yes, where do I do that?
#1) SPEAK TO YOUR ACCOUNTANT FIRST!!!!!!!
#2) See #1.
It cannot be stressed enough – before you cash out bonds, sell stocks, etc., unless you are an expert, speak to your accountant to see how it can affect your tax situation. I have unfortunately seen far too many people lose $5K+ in tax credits because they cashed out bonds/stocks with $2K of interest/gains. It’s extremely painful and frustrating.
That being said:
https://letmegooglethat.com/?q=cash+out+paper+treasury+bond
Is it possible to donate an I Bond to a non-profit without cashing it out?
https://treasurydirect.gov/savings-bonds/manage-bonds/changing-information-ee-or-i-bonds/
It seems that the interest earned up to the point of the donation will be considered your income.
Thanks for the article about when one “should” take his money out, my question is when one “could” take his money. These bonds are to be held for a minimum of 12 months. I bought it in October, can I cash out in September or need to wait for October?
What does 12 months mean to you?
Use this formula to determine your earliest cash-out date:
Date of purchase + 366 days = earliest cash-out date.
October 1st, or first business day in October
Thank you for this post. I was just trying to figure it out earlier this week.
As an aside, I was pleased to notice that they now allow you to type in your password normally instead of using their on-screen keyboard.
I did still find their website very confusing to navigate though. Maybe you can post a step by step on how to withdraw the funds?
Thanks again!
https://www.treasurydirect.gov/savings-bonds/cashing-a-bond/#id-electronic-ee-or-i-savings-bonds-460637
I’m really don’t know much about I-bonds and I’m not fully understanding this post. I bought two I-bonds on 6-14-22. Can you please advise on when is the best time to cash out the bonds? Thank you.
Discuss with your financial adviser and your accountant.
Ignoring tax implications, “9/1/23, if you bought I Bonds in the months of June or December”
If I purchased mine on 8-30-2022, should I take it out on 11-1-2023 or 11-30-2023?
11/1, but maybe wait for 11/2 just to make sure the interest posts for that month.
Thanks!
I purchased bonds in July 2022 and it shows 3.38%, shouldn’t it be 6.48% till 10/1/23? or did I not understand correctly?
No, it stopped earning 6.48% on 6/30/23.
On 10/1/23, it will have had 3 months of 3.38% earnings, which will minimize the 3 month interest penalty.
Thanks for explaining!
So confused. Bought my bond in July 2022. When do I sell?
“10/1/23, if you bought I Bonds in the months of January or July”
So if I sell my 3.38% bond tomorrow, pay the tax (22% bracket), and reinvest the net proceeds at 5% how long before I break even and pull ahead of I what I would have earned by not cashing out the bond.
It irrelevant if are paying 22%.
Example 100 plus 5% interest = $105 less 22 percent taxes $104.40
Keep on doing the calculation you will see it’s no difference if you pay taxes before or after, it the results equal to the same in your pocket.
If you change the tax rate then it is a different story.
Can you please add years to the months. I bought in June 22 which I will liquidate, what’s with October – December 22 after year is up?
Thanks for all.
The year is irrelevant. You can close once the month passes and you’ve held for at least 12 months.
Thank you for the $1,208 I earned thanks to you Dan
Wow…just, wow. For so many people here asking very basic questions about when they should cash in their bonds… if you can’t make that decision, you should not be purchasing them based on a travel miles website in the first place! Do you really need the $10,000 now? If not, why are you so eager to cash in so you can go through the trouble of opening up a new account at some non-name bank to earn a 1% higher APR, especially since your earnings on the I-Bond are deferred? Then, you’ll be whining if inflation picks back up and the new rate on the I-Bonds goes back above the bank earnings and you’re stuck only being able to buy $10,000 in I Bonds per year.
There’s nothing wrong with a little bit of diversification. A little bit of money sitting in some I-Bonds won’t kill you, and moving it somewhere else to ear an extra 1% but having to 1) pay taxes on the bank earnings, AND having to pay taxes on the I-Bond earnings is going to end up being a waste.
Take some of your savings and hire a financial advisor–if you’re getting your financial advice from this site, I can almost guarantee you that a CFA will be able to find many other things that you could do to improve your position.
If you are maxing out you can purchase an extra $5,000 bond with your Tax Refund. You can intentionally overpay. If don’t as Dan suggested when you would eventually redeem in 30 years you would have a large amount of income to pay taxes on at once.
Reminder to cash out January bonds
hi there,
thank you so much for your help, just want to confirm i am doing this right.
i bought one ibond on 5/01/2022
i bought a second ibond on 12/01/2022
when should i pull them out please?
This was super helpful, thank you!
can you update this ? it was very helpful
DAn,
I think I want cash out my Bonds at end of decemeber, can u please post an update when you have a chance ? Thanks so much
Time for the last group to cash in..
I bought $10,000 I Bond 10/22/22 and now it’s $10,820. Does that make sense? When do you suggest I sell?
Yes.
Now.
Only sell if you’re planning to invest in something else that will give you a higher return! Earning 3.38% is better than earning nothing in a bank account.
Cashing out to reinvest meant to choose the payment option of ” Zero-Percent C of I” then buying again? Or should it go the bank and then repurchase? (Don’t want to get his with interest earnings)
You can penny pinch. If you purchase a new bond and it posts before the end of the month, you get interest for the whole month. So if your bank is giving you interest you can redeem on the 1st and repurchase towards the end of the month. You will be earning somewhat double interest.
fyi every time you cash out and reinvest (less than 5 years) you’re losing 3 month of interest – maybe go for t bills
Online reports – Be careful with the ”Zero-Percent C of I” account, that account has no interest and if TD decides there is some kind of fraud on your account you can get your money stuck there interest free for 20 weeks before it gets cleared up!
https://thefinancebuff.com/treasurydirect-zero-percent-c-of-i.html
The redemption value doesn’t look right in my 10K, should I wait for it to update before cashing out? Or are they going to adjust it before cutting me the check?
Dan, just wanted to thank you for turning me on to I-bonds. I always knew of them in an abstract sense, but your breakdown makes for easier understanding than a lot of the gobbleygook out there.
My pleasure!
so I put in 10k in Dec 2021, now it shows $11,332.00
does that mean if I cash out now, to reinvest, they’ll 1099 me for $1,332?
Not sure what I am missing. If my bonds are still earning 5.27% why are you suggesting that I cash them out? Only other investment with close to this (low) level of risk that pays more are MM or relatively short term CD’s. The ones that offer better interest rates that compete with this rate generally require larger deposit. And, MM can change daily and rates have already been dropping. Furthermore, rates are expected to drop April-May, and inflation has come down quite a bit. Won’t I be able to get out with less penalty then (the trailing 3 months interest)?
When did you open your I Bond that you’re earning 5.27% now?
Dan – can you explain this and what is your source
– Interest rates and the trailing 3 month interest penalty have now dropped regardless of when you purchased your I Bonds.
Thank you.
I bond prices get a new rate May and November. This past May the rates dropped to 3.38. Whenever you purchase an I bond it gets the current rate and renews 6 months from purchase. So if your I bond renewed the last chance before the drop (April) you were getting a 6.48 interest until September and than it went down to 3.38 for the last 3 months (Oct-Dec) so now is a good time to cash out you and lose the 3 months of 3.38
TY for clarity. Why are bonds listed at over 5%? Is that only for new purchases? Are there different rates for new purchase and old?
I bonds the past year came with a fixed rate + inflation rate. The fixed rate doesn’t change for the lifetime of the bond, with the inflation rate fluctuating every 6 months. Most people here purchased their i bonds (2 years ago range) when the fixed rate was at 0 hence, they are receiving 0% fixed plus inflation rate which is 3.38
I have the same question as YB
How does one cash them in?
I bought 10k on 4/1/22 and sold it today for $11,208.
Nice return.
Tx Dan
Issue Date Fixed-Rate Inflation Today’s Composite Rate*
Nov 2023 – May 2024 1.30% 3.94% 5.27%
May 2023 – Oct 2023 0.90% 3.94% 4.86%
Nov 2022 – Apr 2023 0.40% 3.94% 4.35%
May 2022 – Oct 2022 0.00% 3.94% 3.94%
Nov 2021 – Apr 2022 0.00% 3.94% 3.94%
Hi,
Any idea when this promotion will end?
“bonus fixed rate of 1.3% on top of the 3.94% inflation rate, for a composite rate of 5.27%”
I purchase bonds 10/28/22 (issue date is 10/1) – should I cash out now?
Pardon my ignorance. I purchased 10K which was issued on January 1 2023. My current value is 10,476 at a 4.35% interest rate. What did I do wrong?
Update, 1/1/24: Interest rates and the trailing 3 month interest penalty have now dropped regardless of when you purchased your I Bonds, so you should likely cash them out now, but speak to your financial advisor before doing so.
Part of the treasury web site still says
https://www.treasurydirect.gov/indiv/help/treasurydirect-help/faq/
>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.
OK?
Thanks for the reminder about the taxes
Not even a printable/saveable 1099 copy available online (screenshot only), gosh.
It’s printable – ask your child to help you!
I’m 25, lol. I’m on mobile, trying to download a copy to my device.
I bought mine on 4/1 2022. what would i be losing by cashing out today and when would you suggest I wait until to cash out?