Have I Bonds from Last Year? Dec. 2 Could Be Your Sweet Spot for Cashing Out

Key Takeaways

  • I bonds were extremely popular between May 1 and Oct. 31 of last year, when their initial rate was 9.62%. But for those who bought during this time, the return has since dropped to 3.38%.
  • Meanwhile, CD rates have surged, with dozens of the best nationwide CDs offering record rates between 5% and 6% APY. That makes it a smart move to trade in I bonds for a federally insured CD.
  • Timing your I bond withdrawal can significantly impact your earnings. Though you can cash out any time after one year, it’s financially smarter right now to wait just a little bit longer.
  • We can tell you the best month to withdraw, based on your I bond’s issue date. After determining that, the best day to cash in is always the 2nd of the month. For many current I bond holders, the ideal withdrawal date will be Dec. 2.

Why 2022 I Bonds Were So Popular—But Are Less Appealing Now

Last year was a historic period for I bonds. That’s because the U.S. Treasury-issued bonds were paying returns of almost 10%, the highest rate they had ever offered. Since that looks more like a stock market return than what you can usually expect from a safe, risk-free investment, legions of Americans snapped up these bonds.

Anyone who bought between May 1 and Oct. 31 of 2022 was lucky to enjoy a 9.62% rate for the first six months. That was then followed by six months paying 6.48%. But I bond rates are indexed to inflation (hence the name), and with inflation cooling significantly this year, the current rate for I bonds purchased during this period has fallen to 3.38%.

It is true that if you cash in any I bond that’s less than five years old, you’ll pay a penalty. But we can help you time it right to minimize the penalty and maximize the gains from moving the money elsewhere.

You may have read early this month that the next 6-month I bond rate had been announced. Though the headline rate was 5.27%, that only applies to newly issued I bonds. For anyone who bought last year between May 1 and Oct. 31, the actual rate for the next 6-month period will be 3.94%.

How I Bonds Work

The interest rate on U.S. Treasury I bonds is adjusted once every six months and is based on current U.S. inflation rates. When inflation climbed to decades-high levels after the pandemic, this pushed up the I bond rate, registering its highest-ever rate of 9.62% on May 1, 2022.

What you personally earn on any I bond is linked to the issue date of that bond. All I bonds issued between May 1 and Oct. 31, 2022, earned that peak rate of 9.62% for their first six months, and it’s why so many Americans poured money into I bonds during this historic window of opportunity. Your issue date also determines the best date to cash out.

Bought I bonds before May 1, 2022? Or after Oct. 31, 2022? The rates you earn are somewhat different than those presented here. And your timing considerations for the best time to withdraw also vary. To find out the details for different issue dates between 2021 and 2023, see our handy I bond tables.

An important rule of I bonds is that they cannot be cashed in for any reason during the first 12 months. But once you’ve reached that one-year mark, you can withdraw any time you like. It’s true you’ll incur a penalty equal to the last three months of interest if your bond is less than five years old. But we’ll explain how you can reduce the hit significantly by carefully choosing your withdrawal date.

The Best CDs Pay More than Current I Bond Rates

With I bond rates now down to the 3% range, they’re no longer as attractive a savings vehicle. Though it’s certainly possible that future I bond rates could rise, I bond rates can never be predicted more than a few weeks before the next semi-annual announcement. Add to this that the Federal Reserve remains committed to bringing inflation further below the current level, and it’s a reasonable expectation that I bond rates in 2024 and 2025 are more likely to decline than to rise.

Fortunately, you can benefit from some lucky timing right now, as certificate of deposit (CD) rates have soared in 2023—and are likely to stay elevated into the new year. Dozens of nationally available certificates are paying rates of 5.00% or more, with the nationwide leader offering as much as 6.00% APY.

This means you could cash out your I bonds and move the money into a top-paying CD to instantly boost your interest rate 1 to 2 percentage points, or even more. Unlike an I bond’s unpredictable future rates, CD rates are locked in and guaranteed for the full duration of the certificate’s maturity term.

The Best Month and Day to Cash in Your I Bonds

If you like the idea of cashing out your I bond, you may be tempted to withdraw as soon as you hit your one-year anniversary. But don’t jump too quickly, as it turns out you’re better off waiting a few months.

Here’s why. The I bond penalty policy (for all bonds older than a year but not yet held for five years) is based on the last three months of interest. As we’ve discussed above, I bond purchasers from May to Oct of last year earned 9.62% for six months, then 6.48% for the next six months, and then 3.38% beginning in Month 13.

If you cash out as soon as you hit 12 months, you’ll forfeit the last three months of interest, when your rate is 6.48%. As that’s an excellent return, it’s worth holding onto instead of giving up. So if you can wait three more months—cashing out at Month 15—your interest rate will only be 3.38% for those last three months. This means you’ll not only be forfeiting a much lower rate, but also one that’s easy to beat with a CD.

To determine the best month for you to withdraw, look up your particular bond’s issue date and in the table below, identify when it will reach Month 15. As you can see, if you bought your I bonds in September last year, Dec. 2 is your sweet spot for cashing out with minimum penalty.

Still holding I bonds you purchased in May, June, July, or August? It’s also worth waiting at this point for Dec. 2, so that you can collect your December interest payment before withdrawing.

Best Date for Minimizing Withdrawal Penalty on I Bonds Issued from May to Oct. 31, 2023

I Bond issued on any date in this month Date you reach 15 months and minimize your penalty
May 2022  Aug. 2, 2023
June 2022   Sep. 2, 2023
July 2022    Oct. 2, 2023
Aug. 2022   Nov. 2, 2023
Sept. 2022   Dec. 2, 2023
Oct. 2022   Jan. 2, 2024

You’ll notice above that the date listed for minimizing your penalty is the 2nd of each month. The reason is that the U.S. Treasury always pays interest for the month right away on the 1st, and not again until the 1st of the next month. So once you’ve been paid your interest for the month, there’s no reason or additional earnings to be gained by holding the funds longer during that month.

For anyone moving their I bond funds elsewhere, withdrawing on the 2nd enables you to collect the I bond interest payment on the 1st—and then as quickly as possible start earning interest on that money elsewhere, such as a CD or high-yield savings account. Even if you simply want to cash out and use your I bond funds, there’s no financial gain from waiting beyond the 2nd for your withdrawal.

Rate Collection Methodology Disclosure

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

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