Here Is When You Should Consider Redeeming Your I Bond

According to experts, there are a few factors to consider before selling your Series I bonds if you are one of the multitudes of new bondholders.

Per the U.S. Treasury Department, investors acquired I bonds worth more than $7 billion in October, with $979 million flowing into I bonds on October 28, when the interest rate was locked in for six months at 9.62%.

You cannot access the funds for at least one year, and early redemption of I bonds incurs a penalty. You will forfeit three months of interest if you redeem your I bonds before the five-year mark.

Jeremy Keil, a certified financial advisor with Keil Financial Partners in Milwaukee, stated that most purchasers of October I bonds should not cash out until January 2024. For instance, if you purchased I bonds in October, you could receive a full year’s interest, taking into account a three-month penalty for early redemption, by waiting 15 months (instead of only 12) until January 2024 to redeem them.

Keil said that depending on future I bond yields compared to alternative cash choices, it may be advantageous to hold I bonds for longer than one year and three months.

You should only withdraw funds if you dislike the interest rate, he said. When selecting whether to redeem, you must assess your objectives, risk tolerance, and time horizon.

How bond interest rates function

The U.S. government backs I bonds provides both a fixed and variable interest rate. The fixed rate may vary every six months for new purchases but remains constant for existing purchases, whereas the variable rate fluctuates every six months in response to inflation.

While the Treasury publishes new rates in May and November each year, your variable rate is based on the date you purchased the bond. Even though the yearly rate changed to 6.89% on November 1, you might have secured the prior 9.62% rate for six months if you had purchased before October 28.

For instance, if you acquired I bonds in October, you will get a yearly interest of 9.62 percent for the next six months. In April 2024, you will begin collecting yearly interest of 6.48 percent for the next six months. (The actual rate on new I bond purchases differs from the headline rate of 6.89% owing to the fixed part of the rate, which remains constant after purchase.)

The Treasury adds six months’ interest to your original investment twice a year.

However, suppose your I bonds are less than five years old. In that case, the value displayed in TreasuryDirect eliminates the prior three months of interest, according to Jonathan Swanburg, a CFP with Tri-Star Advisors in Houston.

When deciding when to redeem your I bonds, you should also consider the day within the month.

If you acquired I bonds at the end of October, you receive credit for the entire month, so you may pay them out as early as October 1, 2024, the following year, according to Swanburg.

Moreover, “I Bonds only collect interest on the first day of the month,” according to Swanburg. Thus there is no incentive to redeem them later in the month.