It May Be Time to Sell Your I Bonds — Use The Cash For These Investments Instead
Written by
Adam Palasciano
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
We’ve all felt the effects of skyrocketing inflation over the past few years. Inflation has led to the rising cost of housing, food, and just about everything in between. Fortunately, inflation is starting to ease as we head into 2024.
Back when inflation was at a 40-year high in 2022, U.S. government-backed Series I Savings Bonds paid a record 9.62% interest rate. What’s not so fortunate today? Now, just like inflation, the interest rate on I bonds is coming down too. TreasuryDirect, the government agency which issues I-bonds, stated in a recent press release that the composite rate for I bonds is a combination of a fixed rate, which applies for the 30-year life of the bond, and the semiannual inflation rate. I bonds issued from Nov. 1, 2023, through Apr. 30, 2024, now carry a 5.27% composite rate, which only applies for the first six months after the issue date.
If you’re wondering whether you should buy I bonds or sell the ones you currently hold, you have other options. Some other investments will earn you more money in interest payments than currently issued I bonds have to offer, according to USA Today.
Alternative Ways To Earn More Interest Than I Bonds
The current 5.27% composite rate on I bonds seems pretty great considering that money market funds, savings accounts, certificates of deposit (CDs) and short-term Treasuries all currently pay within the 5% range.
However, the 5.27% composite rate on I bonds is only for new I Bond purchases. After the first 6 months after the issue date, that rate will likely decrease given improving economic conditions and cooling inflation as we head into 2024.
So, considering one or more of the alternative investment vehicles mentioned above may be a better bet to have an approximate 5% rate for more than 6 months.
It’s important to mention that interest on I bonds and Treasuries are only taxed federally. Interest from money market funds, savings accounts and certificates of deposit (CDs) may also be subject to state and local taxes depending on where you live.
How To Sell Your I Bonds
If you’re convinced that you can earn more interest on your hard-earned money through other means, here’s how you can sell your I bonds online now:
- Go to your TreasuryDirect account and log in
- Click on ManageDirect
- Click the link for “Redeem securities”
- Select the I bonds you wish to cash in on
Thanks!
If you have paper I bonds, you can check with your bank or do it directly with the Treasury. Here are the steps for selling your paper I Bonds:
- Complete FS Form 1522
- Get your signature certified, if necessary. Your signature must be certified if the value you’re cashing is more than $1,000.
- Send the form and the I bonds to the Treasury at the address on FS Form 1522.
Important Rules Regarding I Bonds
Here are some important rules and regulations to keep in mind when cashing in your I Bonds.
- If you cash in your I bonds in less than 5 years, you lose the last 3 months of interest. If you’ve held them for at least 5 years, you won’t be penalized by losing the last 3 months of interest.
- If you decide to buy I bonds, be sure to do so at the end of the month. This is because you only need to own them by the last business day of the month to receive the full month’s interest.
- You don’t receive the month’s interest from the I bond until the month is complete. This means that the best time to sell is after three continuous months of low interest and then just after the 1st day of the fourth month. This way, you’ll hold onto the higher interest and eliminate the lower rate.
- There is an annual $10,000 cap per person per year on I bonds purchases. This means that if you purchased $7,000 earlier in the year, sell them, and then want to buy more before the year ends, you’ll only be able to purchase $3,000 worth.
- After you sell your I bonds, you’ll receive a 1099-INT for your taxes. Interest from I bonds is only taxed at the federal level, not at the state or local level. Although, you can be exempt from federal taxes on I bond interest if the money is used to pay for higher education.
Whichever investment vehicles you choose to grow your money in 2024, whether it be savings bonds or not, be sure to do your research and choose the ones that coincide with your risk tolerance and investment goals.
