Series I savings bonds have become a popular investment strategy as part of a diversified portfolio, but how exactly do they work and what can you expect from them over time?

If you've added Series I bonds to your portfolio, you might be wondering how to manage them going forward. When is the best time to sell your I bonds? Should you sell them now, or hold on for a bit longer? Once you're ready to make a move, what steps do you need to take to sell them effectively?

What are I Bonds?

A Series I savings bond, also known as an I bond, is a low-risk investment issued by the U.S. Treasury designed to protect your money from inflation. 

The bond earns interest through two components: a fixed rate and an inflation rate. While the fixed rate remains the same for the life of the bond, the inflation rate adjusts every six months based on changes in the Consumer Price Index (CPI). This unique structure makes I bonds an appealing option for investors looking to preserve purchasing power in times of rising inflation.

I bonds can be purchased directly from the U.S. Treasury at TreasuryDirect.com, and they offer a variety of benefits. They are exempt from state and local income taxes, and federal taxes on the interest can be deferred until the bond is cashed in or matures. Additionally, I bonds are fully backed by the U.S. government, making them one of the safest investments available.

This combination of inflation protection, tax benefits, and security has made I bonds a popular choice for both conservative investors and those looking to balance riskier investments with a more stable option.

The timeline of our Series I Bond journey

You might have seen their popularity go up and down over the last few years, leaving many investors wondering whether to cash out or hold what they have. As you can see from this brief timeline covering a few of the recent highs and lows

November 2021 –

It was a good idea to pick up Series I Bonds because inflation was roaring. Yields at the time were 7.12% and inflation was anticipated to pick up, meaning the yield was expected to increase.

The key here was inflation was high and the Fed was late with hiking rates, which left little to no safe alternatives to park cash. Investors couldn’t get enough of the Series I Bonds, it was common for us to hear that the cap of $10,000/year was too low.

May 2022 –

The yield of 9.62% on these bonds peaked with inflation. At the time we knew inflation wasn’t a forever thing but 9.62% is very compelling. Other risk-free rates were ~3% at the time so it made sense to continue to buy (or hold) Series I Bonds.

November 2022 –

Decisions need to be made where yields dropped to 6.89% and it was getting to a point whether buying more of these was not quite the value they once were compared to other safe savings vehicles. Yields for CDs were ~5% but they were much easier to buy than the Series I Bonds, plus there was no $10,000 limit to buying the CDs.

February 2024 –

Rates on Series I bonds were 5.27% which was in line with money market and CD rates. Given that it’s much easier to buy (and sell) money market funds and CDs, it didn’t make as much sense to pick up more Series I Bonds. However, if inflation were to reignite these bonds would make good hedges against inflation. If inflation continues its downtrend, we could see these rates go materially below other alternatives.

When Should You Sell Series I Savings Bonds? 

As with nearly everything in the financial world, “one-size-fits-all” answers just don’t cut it. If you’re wondering when to sell your I bonds, the best path forward will depend on several factors.

Remember how we mentioned that the bond earns interest through two components? Since the inflation portion of the rate will change throughout the life of the bond, this has a major impact on how much your investment is earning in the bond.

Take some time to evaluate your holdings, tax plan, and overall portfolio when deciding whether or not to sell your I bonds. Here are some of the key elements to consider before making a decision.

1. Withdrawal Penalty

Since the inflation portion of the bond’s rate can change every 6 months, investors might wonder if they can jump on board when the rates are good and sell when the rates drop. While you certainly can, you will face an I Bond withdrawal penalty for selling too quickly. 

If you hold the bond for less than five years at the time when you cash it in, you will lose the last three months of accrued interest.

On the other hand, you can avoid the I Bond withdrawal penalty by holding onto your bonds for the long haul. As long as you’ve owned the bonds for at least 5 years, there will be no penalty when you cash out.

2. Inflation

You may consider selling your Series I savings bonds when the rates change. Every six months, the inflation rate takes effect (on both May 1 and November 1). This rate change is based on the Consumer Price Index and is non-seasonally adjusted. 

In May 2022, the yield on these bonds peaked at 9.62% due to inflation, making them an enticing investment compared to other low-risk rates. However, the yield dropped to 6.89% by November 2022 and 5.27% by February 2024.

When the rate drops drastically, you have a choice to make. Is it better to cash out your I bond early, pay the withdrawal penalty, and reinvest those funds somewhere else at a higher rate?

If you cash out early, you’ll owe the withdrawal penalty of the last three months of accrued interest – like we just talked about. However, if your funds could grow more quickly by reinvesting those funds elsewhere (such as private investing or ETFs) when factoring in the penalty, selling could make sense.

3. Liquidity

While bonds are not as liquid as cash, they’re still a fairly liquid and flexible investment. You should generally aim to sell your bonds only when rates and market conditions deem it strategic to do so, but in the case of a personal financial emergency, selling your I bonds can provide fast cash.

If you need the extra money to line a savings account, cover an emergency bill, or make an investment in a different manner, you might choose to sell your Series I bonds. 

4. Diversification

Many people tried to maximize their I Bond investments in 2022 because of the excellent rates. However, those same people also risked being too heavily concentrated in Series I bonds.

If your portfolio is currently too heavy in I bonds, you might consider selling and reinvesting elsewhere in order to diversify.

Since they’re backed by the U.S. Treasury, I Bonds are essentially as close to “risk-free” as possible. That said, no investment is truly without risk. In this case, the “risk” would be the likelihood of a good rate plummeting rather than the risk that you lose your investment entirely. 

A healthy portfolio will be diversified across multiple investments. Even if bond rates fall, your portfolio’s growth won’t come to a near standstill. 

5. Taxes

One thing to keep in mind is that you'll owe federal tax on the interest earned from your bonds. The choice of how to pay is yours: you can pay it annually or defer it altogether until you decide to redeem the bond. 

Based on how this fits into your overall personal tax plan, this can affect your decision to either sell now or later depending on what you will owe the government at the time of sale. 

6. Maturity

Series I bonds stop earning interest after thirty years, and there’s no sense in holding on to bonds that aren’t yielding any more income. 

If you have any bonds in your holdings that are approaching this level of maturity, it is time to sell them so that you can reinvest that money back into something that will continue earning well into the future. 

Requirements to Sell Your I Bonds

If you’ve decided selling your Series I savings bonds is the best move, the next step is to ensure you meet the requirements to sell. There are several criteria you must meet before you’re allowed to cash in, which can affect your plan if you’re not aware of them.

Requirement #1: Minimum Holding Period

You must have held them for the minimum holding period, which is currently fixed at twelve months. If you recently purchased your bonds and are hoping to cash in quickly, it may not be a viable solution. 

Requirement #2: Minimum Bond Value

You must also meet the minimum amount to cash in your Series I bonds. Electric bonds have a minimum of $25 to withdraw, while paper bonds must be cashed for their full amount.

Retirement 3: Adhere to Your Bank’s Redemption Limits

When it comes time to sell your I bonds, check with your bank to see how much you can redeem and deposit in one day. There are often redemption limits placed on electronic I bonds that can limit your ability to cash out quickly.

How to Sell I Bonds

If you’ve met all the requirements to sell your I bonds and are ready to move forward, there are a few ways to cash out. Here are a few methods to cash your I bonds:

Digital Selling Method 

The first and most straightforward method is to sell your I Bonds directly through your account on the TreasuryDirect website. Gather up your bond information, as you will need to include the serial numbers and issue dates on each one. It can take a few days to process your request. 

Paper Selling Method

Paper bonds may require a little more legwork to cash in. You may need to contact Treasury Retail Services and complete FS Form 1522 if you cannot find a local outlet to sell your I bonds. 

Bank Selling Method

Alternatively, your bank may also be able to cash in your bonds. Be sure to call your financial institution before you head out, as not all banks will offer this service. Keep in mind that if you have paper I bonds, you must cash in the entirety of the bond.

FAQs about Series I Savings Bonds

Curious to know more about I Bonds, how they work, and some of the details surrounding how they work? Here are a few frequently asked questions to cover the basics.

How do I buy I Bonds?

You can buy Series I Savings Bonds directly from the U.S. Treasury at TreasuryDirect.org. Electric I Bonds have a $25 minimum, while paper I Bonds have a $50 minimum. 

How do I sell I Bonds?

You can cash in your I Bonds in your TreasuryDirect account. You must have owned the bond for at least 12 months before you can sell.

For electronic I Bonds, you also must have at least $25 in your account to cash out. Paper I Bonds have no minimums, but must be cashed out for its entire value – you cannot partially cash a paper bond. 

What is the current rate for I Bonds?

The interest rate for I bonds changes on a regular basis. While the fixed portion of the rate will remain for the life of the bond, the interest rate portion could change every 6 months.

To see the most current I Bond rates, always refer to TreasuryDirect’s most recent posted numbers.

What is the I Bond withdrawal penalty?

If you purchase an I Bond and sell it in less than 5 years, you will lose the last 3 months of interest. You can avoid the I Bond withdrawal penalty by holding onto bonds for at least 5 years before cashing out

How are I Bonds taxed?

The interest earned on your I Bonds is subject to federal income tax, but not state or local income taxes.

You may also owe federal estate, gift, and excise taxes, as well as state estate or inheritance taxes.

You can choose to report the interest each year, or you can defer reporting interest until you cash out the I bond. The best method for you will depend on your unique tax situation, so we recommend working with a financial advisor or tax strategist who can analyze your overall financial picture. 

Refine Your I Bond Investment Strategy with Consilio

Have questions about when or how to sell your I bonds? At Consilio Wealth Advisors, we’re more than just a wealth planning group – we’re your partner in navigating complex financial decisions. 

Whether you’re managing a mix of I bonds, RSUs, or other unique compensation structures, our fiduciary team specializes in creating customized strategies for seasoned tech professionals at Amazon, Google, Meta, and Microsoft. We ensure every piece of your financial puzzle fits together seamlessly so you can achieve financial freedom and enjoy the life you want to live.

Ready to maximize your investments and take control of your financial future? Contact us today

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The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

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