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If you’re one of the masses of new Series I bond owners, there are a few things to weigh before cashing in your assets, experts say.
Investors purchased nearly $7 billion in I bonds in October, according to the US Department of the Treasury, with $979 million flooding into I bonds on Oct. 28, the deadline to lock in 9.62% annual interest for six months.
You can’t access the money for at least one year and there’s a penalty for redeeming I bonds within five years. If you cash in your I bonds before that five-year mark, you’ll lose the previous three months of interest.
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“Most October I bond purchasers should not cash out until January 2024,” said Jeremy Keil, a certified financial planner with Keil Financial Partners in Milwaukee.
For example, if you bought I bonds in October, you can earn a full year of interest, taking into account the three-month penalty for withdrawal before the five-year mark, by waiting 15 months (rather than just 12) until January 2024 to redeem.
However, depending on future I bond rates — compared to other options for cash — it may be worthwhile to keep your I bonds beyond just one year and three months, Keil said.
“You should only cash out when you don’t like the interest [rate],” he said. Of course, you’ll want to consider your goals, risk tolerance and timeline for the money when deciding whether to redeem.
How I bond interest rates work
Backed by the US government, I bonds don’t lose value and earn monthly interest with two parts: a fixed rate and a variable rate. The fixed rate may change every six months for new purchases but stays the same after buying, and the variable rate shifts every six months based on inflation.
While the Treasury releases new rates every May and November, the variable rate depends on your purchase date. Although the annual rate changed to 6.89% on Nov. 1, you could still have secured the previous 9.62% rate for six months by purchasing by Oct 28.
For example, if you purchased I bonds in October, you’ll receive 9.62% annual interest for six months. In April 2023 you’ll start earning 6.48% annual interest for the next six months. (The rate is different from the headline 6.89% on new I bond purchases, due to the difference in the fixed portion of the rate, which remains the same after purchase.)
Twice per year, the Treasury adds interest earned from the previous six months to your original investment.
However, if your I bonds are less than five years old, the value in TreasuryDirect excludes the previous three months of interest, explained Jonathan Swanburg, a CFP at Tri-Star Advisors in Houston.
Why it’s better to redeem early in the month
As you weigh when redeeming your I bonds, you’ll also want to consider the timing within the month.
If you purchased I bonds near the end of October, you get credit for the full month, Swanburg said, meaning you can cash out as early as Oct. 1, 2023 next year.
What’s more, “I Bonds only accrue interest on the first day of the month,” Swanburg said, so there’s no benefit to cashing out later in the month.
Correction: This story has been updated to reflect that if you purchased I bonds in October, then in April 2023 you’ll start earning 6.48% annual interest for the next six months.