Here is Why You May Want to Cash In your Old I-bonds For New Ones

As inflation falls, new I-bonds earn 4.3% but have an appealing 0.9% fixed rate. Starting from May 1 until the end of October, new purchases will get a 0.9% fixed rate for up to 30 years. This is a good opportunity for those who see bonds as a long-term solution to saving money.

The interest rate for Series I Bonds has decreased due to a slowdown in inflation. The official announcement happened on Monday as part of the semiannual adjustment. The new I-bonds will have a composite rate of 4.3% from May 1 to the end of October, down from 6.89% during the previous six months and a high of 9.62%. This includes a fixed rate of 0.9%, up from 0.4% in the last six months to 0% for several years.

The US Treasury generally waits until May 1 and November 1 to publish the new rate on the investments. Still, this time it revealed the upgrade without warning on Friday on its, the only location to buy the bonds. I-bonds have gained popularity over the last two years as interest rates have risen, and word has traveled swiftly.

I-bond rates are divided into two parts: an adjustable rate based on inflation data that resets every six months and a fixed rate established at the time of purchase and remaining with the bond until redemption (up to 30 years). Some rules apply, the most important of which are: Individuals can only purchase up to $10,000 annually. In addition, you must keep I-bonds for at least one year before cashing out, and if you cash out before five years, you will forfeit the final three months of interest.

At 4.3%, I-bonds will no longer be at the top of the savings pile when CDs, savings accounts, and other Treasury products earn the same or more. However, I-bonds remain appealing to long-term savers because of how inflation protection works. This is due to the new issue of I-bonds’ strong fixed rate. Those who purchased I-bonds in the previous two years while the fixed rate was 0% may consider cashing them out and buying new ones, although this technique requires at least 15 months rather than just one year. Before cashing out your old I-bonds, ensure they don’t affect your tax bracket for federal taxes (I-bonds are exempt from state and local taxes only).

According to Harry Sit, proprietor of the site The Finance Buff, he would recommend cashing out old bonds at 0% and switching to new bonds at 0.9%, but you have to be careful not to lose the 6.48% variable rate.

You may be asking why the I-bond interest rate has dropped so much since eggs and other goods are still so costly. I-bonds are based on the latest six months of Consumer-Price Index inflation data, which excludes the high values from a year ago that are still included in headline inflation statistics. Inflation is a percentage of growth, and it depends on when you start counting.