When To Sell Off Our I-Bonds – Doctor Of Credit

We covered extensively the saga of excellent returns on I Bonds during 2021 and 2022. The most recent rate is 3.40%, which is lower than most high-yield savings accounts are offering. Many of us are contemplating when to pull out our funds from Treasury Direct.

First let’s review the I Bond rates that many of us bought into:

Now let’s take a look at when to pull out your funds. For the sake of this post, the assumption is that we want to keep the money in I Bonds for the 6.48% rate, but not when it moves onto the 3.40% rate. (We’re also assuming that these I Bonds were purchased prior to November 2022.)

To find the date of your I Bonds purchase, login to the Treasury Direct website and it’ll show the Issue Date. Or it might be easier to check your bank transactions to see when the funds were pulled.

• If you bought in April or October (that’s when the new rates were publicized on blogs, that’s BEFORE the new rates went live) – regardless of which year you bought – you’ll want to wait until January 1, 2024 to withdraw the I Bonds. That’s because your 6 months of 6.48% interest finishes in September 2023, then your 3-month penalty period takes up October, November, December.
• If you bought in May or November (that’s the month when the new rates went live) – regardless of which year you bought – you’ll want to withdraw the I Bonds on August 1, 2023. That’s because your 6 months of 6.48% interest finished in April, then your 3-month penalty period takes up May, June, July.
• If you bought in June or December – regardless of which year you bought – you’ll want to withdraw the I Bonds on September 1, 2023. That’s because your 6 months of 6.48% interest finished in May, then your 3-month penalty period takes up June, July, August.
• If you bought in July or January – regardless of which year you bought – you’ll want to withdraw the I Bonds on October 1, 2023. That’s because your 6 months of 6.48% interest finished in June, then your 3-month penalty period takes up July, August, September.
• If you bought in August or February – regardless of which year you bought – you’ll want to withdraw the I Bonds on November 1, 2023. That’s because your 6 months of 6.48% interest finished in July, then your 3-month penalty period takes up August, September, October.
• If you bought in September or March – regardless of which year you bought – you’ll want to withdraw the I Bonds on December 1, 2023. That’s because your 6 months of 6.48% interest finished in August, then your 3-month penalty period takes up September, October, November.

Someone who bought 3 or 4 years ago might decide to hold until they hit the 5-year mark and thus avoid the 3-month penalty. Regardless, you’ll always want to withdraw near the beginning of the calendar month since interest gets paid out monthly. For example, if it’s now 20th of the month, I’d wait until the first of the coming month to cash out and get an extra full month worth of interest for holding those extra 10 days.

Some people might be playing the long game and plan on holding these long term. Personally I plan on cashing out in January 2024 since I always bought in April and October. For someone who has the .90% fixed rate it becomes a tougher decision whether to cash out or hold, depending on your long term investing goals.

A reader reminds us that you get hit with all the taxes in the year which you break the I Bond. Until then the interest just accrues in the background, and isn’t actually realized until you break the bond. (There are federal taxes on I Bonds income, and you’ll get a 1099-INT for the income. There are no state or local taxes on I Bonds.) And so if you plan on being in a lower tax bracket next year it might make sense to hold until January 1st.

The next I Bonds rate official release will be in November 2023. We should already have a good estimate on these by late October 2023.