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 first of the month. For many current I bond holders, the ideal withdrawal date will be Dec. 1.
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. Wheninflationclimbed 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. 1 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. 1, 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. 1, 2023 |
| June 2022 | Sep. 1, 2023 |
| July 2022 | Oct. 1, 2023 |
| Aug. 2022 | Nov. 1, 2023 |
| Sept. 2022 | Dec. 1, 2023 |
| Oct. 2022 | Jan. 1, 2024 |
You'll notice above that the date listed for minimizing your penalty is the first day 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 first day 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 first day of the month enables you to collect the latest interest payment—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 1st 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.
Correction—Dec. 1, 2023: This article has been corrected to state that I bonds redeemed on the first day of the month will successfully capture that month's interest payment.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
TreasuryDirect. "I Bonds Interest Rates."
TreasuryDirect. "Series I Savings Bond Earnings Rates Effective May 1, 2023."
U.S. Bureau of Labor Statistics. "Consumer Price Index for All Urban Consumers (CPI-U)."
U.S. Treasury. "Questions and Answers About Series I Savings Bonds," Page 1.
As an expert in personal finance and investment strategies, I bring a wealth of knowledge and practical experience to guide individuals in making informed decisions about their financial portfolios. My deep understanding of various investment instruments, including government-issued bonds, certificates of deposit (CDs), and the dynamics of interest rates, allows me to provide valuable insights and recommendations.
Let's delve into the key concepts mentioned in the article:
1. I Bonds and Their Popularity in 2022:
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Historic I Bond Rates: In 2022, I bonds issued by the U.S. Treasury garnered widespread attention due to historically high returns, peaking at 9.62% on May 1, 2022. Investors who purchased I bonds between May 1 and Oct. 31 of that year enjoyed a favorable initial rate.
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Inflation-Indexed Rates: I bond returns are tied to inflation, and the rates are adjusted every six months. The significant rise in inflation during the pandemic contributed to the exceptional returns in 2022. However, with inflation cooling in subsequent periods, the return on I bonds purchased during the mentioned window has dropped to 3.38%.
2. CD Rates Surging:
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Competitive CD Rates: Concurrently, the article highlights a surge in Certificate of Deposit (CD) rates, with some of the best nationwide CDs offering record rates between 5% and 6% Annual Percentage Yield (APY). This surge makes CDs an attractive alternative to I bonds for investors looking for federally insured options.
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Lock-in and Guarantee: Unlike the fluctuating rates of I bonds, CD rates are fixed and guaranteed for the entire maturity term of the certificate, providing investors with stability and predictability.
3. Timing Considerations for I Bond Withdrawal:
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Optimal Withdrawal Strategy: The article emphasizes the importance of timing when withdrawing funds from I bonds. While investors can cash out any time after one year, waiting a little longer can be financially smarter.
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Penalty Mitigation: Cashing out I bonds within the first 12 months incurs a penalty, but after that period, the penalty is equal to the last three months of interest. The advice is to wait until Month 15 to minimize the penalty, especially for bonds purchased during the peak rate period.
4. Best Month and Day to Cash in I Bonds:
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Strategic Withdrawal Date: The article provides a table indicating the best date to minimize withdrawal penalties for I bonds issued between May 1 and Oct. 31, 2023. The recommended date for minimizing penalties is the first day of the month, aligning with the U.S. Treasury's interest payment schedule.
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Interest Collection Strategy: Withdrawing on the first day of the month allows investors to collect the latest interest payment promptly and start earning interest elsewhere, such as in a CD or high-yield savings account.
5. Comparing I Bond and CD Rates:
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Decline in I Bond Attractiveness: As I bond rates have dropped to the 3% range, the article suggests that they are no longer as attractive as a savings vehicle. The Federal Reserve's commitment to reducing inflation further supports the expectation that I bond rates in the coming years may decline.
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Benefit of High CD Rates: The surge in CD rates in 2023 is highlighted as an opportunity for investors to potentially boost their interest rate by transitioning from I bonds to high-paying CDs, which offer stability and competitive returns.
In conclusion, my expertise in financial markets and investment strategies enables me to interpret the nuances of the article, offering actionable insights for investors looking to optimize their portfolios in light of changing market conditions.
