When to Cash Out Your Series I Bonds

If you have invested in Series I savings bonds, you might be wondering about the optimal time to cash them out to maximize your returns. Here are some key considerations and tips to help you make an informed decision.

Timing is Important: If you are interested in cashing out your Series I bonds within the first five years, you should first consider the three-month interest penalty. This penalty means you will forfeit the last three months of interest earned on your bonds if you redeem them before the five-year mark.

Interest Rate Changes: The interest rate on your Series I bonds changes every six months based on the inflation rate at the time of purchase, not when the government changes the rates. Monitoring these changes of rate influxes can help you make a decision on an optimal time to cash them out.

Monthly Timing on Accruing Interest: With a Series I bond, you don't earn interest for the current month until the next month begins. Therefore, it's generally better to cash out your bonds at the beginning of the month rather than at the end to ensure you earn the full interest accrued.

Inflation Trends and Current Interest Rates: The Treasury Department announced in November of 2024 that Series I bonds will pay 3.11% through April 2025, down from 4.28% in May. This decrease comes from the cooling inflation rates.

Alternative Investment Options: With declining interest rates, other investment options such as Treasury bills, certificates of deposit (CDs), or money market accounts might be better for your money. These alternative options could potentially offer better returns depending on current market trends.

Penalty for Early Selling: If you decide to sell your Series I bonds within the first five years, you will incur a penalty equivalent to the last three months of interest earned. This penalty can reduce your total earnings, and may be wise to weigh the benefits against the costs before making a decision.

Monitoring Your Bonds Interest Rates: The interest rate on your bonds changes every six months based on when you bought them. For example, if you purchased bonds in July, your interest rate would change in January the following year and again in July.

Sell at the Right Time: Given the interest accrual rules, it's generally more beneficial to sell your bonds at the beginning of the month since you don't earn interest for partial months.

Cashing out your Series I bonds requires careful consideration of several factors, including the timing of interest rate changes, the potential penalty for early redemption, and the current interest rate environment. By understanding these elements, you can make an informed decision that maximizes your returns. For expert advice on Series I bonds or other financial investment options, consult with our Trusted Advisors.

Tony Powers, AIF®, CFP®, CRPS® Shareholder

Tony Powers, President of KerberRose Wealth Management, has more than 20 years of experience in the financial services industry. He specializes in helping private and public sector employers set-up and manage their employee retirement plans. Tony provides Fiduciary Services and Support, Plan Design Consultation, Plan Benchmarking and Financial Wellness.