Key Takeaways
- I bonds became extremely attractive last year between May 1 and Oct. 31, when the initial rate was 9.62%. But if you bought during this time, your return has since fallen to 3.38%.
- Now that dozens of the best nationwide CDs are offering record rates of 5.00% to 6.50% APY, moving your I bond funds to a federally insured CD can be a smart move.
- There are better and worse times to cash in an I bond. Though you can withdraw any time after one year, right now it's smarter to wait just a little bit longer.
- Once you determine the best month to cash in based on your I bond's issue date, the best day to withdraw is always the first day of the month. For some bond holders, that means the sweet spot will be Nov. 1.
Why I Bonds Were So Popular in 2022—But Are Less Attractive Now
It was a banner year for I bond purchases in 2022. That's because the U.S. Treasury-issued bonds were paying the highest rates they had ever offered, with returns approaching an astonishing 10%. 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.
If you bought between May 1 and Oct. 31 of last year, you were among the lucky savers to enjoy a 9.62% rate for your first six months, followed by six months at 6.48%. But since the aptly named I bonds are indexed to inflation, which has cooled significantly this year, your current rate for bonds purchased during this period has fallen to 3.38%.
That means you can now earn a much better return on your money with another safe and risk-free investment. Certificates of deposit (CDs) are paying historically high rates right now, allowing you to lock in a return as high as 6.50% APY. Yes, if you bought your I bond last year, you'll pay a penalty for cashing it in now, but we'll help you time it right so that the penalty is minimized—and your gains from moving the money elsewhere are maximized.
A Quick Review of How I Bonds Work
U.S. Treasury I bonds pay an interest rate that is adjusted once every six months, and that rate is based on current U.S. inflation rates. Inflation climbed to decades-high levels after the pandemic, reaching a peak of 9.1% in June 2022. This in turn pushed up the I bond rate, which registered its highest-ever rate of 9.62% on May 1, 2022.
What you personally earn on your I bond is linked to the issue date of the bond. All I bonds issued between May 1 and Oct. 31, 2022, earned that peak rate of 9.62% for the first six months, and it's the reason so many Americans poured money into these bonds during that window of opportunity. Your issue date also determines the best date to cash out if you want to use the funds or move them elsewhere.
If you bought I bonds before May 1, 2022, or after Oct. 31, 2022, the rates you're earning are somewhat different than we're presenting here. And your timing considerations for the best time to withdraw also vary. To find out these details for different issue dates from 2021 to 2023, see our handy I bond tables.
An important caveat of I bonds is that they cannot be cashed in for any reason during the first 12 months. Once you've reached the 1-year mark, you can withdraw at any time. 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.
I Bonds Now Earn Less than the Top-Paying CDs
Now that I bond rates are paying in the 3% range, they are no longer as attractive a savings vehicle. Though it's possible the next I bond rate will rise higher, 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 CD rates have soared in 2023—and are likely to stay elevated for the foreseeable future. Dozens of nationally available certificates are paying rates of 5.00% or more, with the nationwide leader offering as much as 6.50% 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 as much as 3 percentage points. Not only that, but CD rates are fixed and guaranteed, so you'll have the benefit of knowing exactly what your APY will be for the full duration of the CD term you choose.
The Best Month and Day to Cash In Your I Bonds
Given how much more you can earn right now with a CD than by keeping your money in I bonds, you may be tempted to withdraw as soon as you hit that 1-year anniversary. But don't jump too quickly, as it turns out you're better off waiting a few months.
Here's the reason. 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 one year, 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. But 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 the issue date of your particular I bond and with the table below, identify when you'll reach Month 15. As you can see, if you bought your I bonds in August last year, Nov. 1 is your sweet spot for cashing out with minimum penalty. And if you still hold I bonds you purchased in May, June, or July, it's also worth waiting at this point for Nov. 1, so that you can collect your November 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 |
| August 2022 | Nov. 1, 2023 |
| September 2022 | Dec. 1, 2023 |
| October 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 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 any 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 begin earning interest with that money somewhere else, such as a CD or high-yield savings account. And even if you just want to cash out and use your I bond funds, there is no financial benefit to 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
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U.S. Treasury, TreasuryDirect.gov. I Bonds Interest Rates.
U.S. Treasury, TreasuryDirect.gov. 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."
