The Best Time to Redeem I-Bonds

Previously, we wrote abut the benefits of I-Bonds in an inflationary economic environment. So when is the best time to move your funds away from I-Bonds?

​I-Bond investments hit an all-time high in 2022. With inflation on the rise and at decade-highs, I-Bonds became very attractive since the earnings rate is directly tied to inflation.
 
But with inflation cooling and I-Bond rates moving from 9.62% highs down to 3.38%, investors are considering potential moves out of I-Bonds and into other options.
 
Key Points to Understand

• I-Bonds cannot be redeemed before holding for at least one year
• There’s a 3-month interest penalty for redeeming I-Bonds before the end of 5 years

 
Because of the 3-month interest penalty, investors would be wise considering the timing of their exit. For example, if you purchased I-Bonds last August when rates were at 9.62%, your rate didn’t drop to the next 6.48% reading until this past February, and your rate didn’t drop to the 3.38% lows until August. So you’d actually want to keep your I-Bond 3 months after it dropped to the lows, so you only lose the lowest rate when sacrificing the last 3-months interest. So be sure you don’t exit when you may sacrifice 3 months of the higher rates.
 
Another consideration is that I-Bonds don’t accrue partial months’ of interest. So it’s best to cash out at the beginning of a month since cashing out at the end won’t give you any more interest, and it has you wasting that time when you could’ve moved to another investment like a CD or even online savings account.
 
With the above being said, lowering I-Bond rates doesn’t automatically mean you should exit. It’s best to consider your overall investment strategy and work with your financial advisor to determine the best moves for you!