Want to Cash in Your I Bonds? Here's the Best Time to Do It

Sabrina Karl has over two decades of experience writing about savings, CDs, and other banking topics. She is currently a staff writer at Investopedia and one of the country's top experts on how to earn as much as possible on the money you hold in the bank. She previously wrote for Bankrate.com, CreditCards.com, DepositAccounts.com, and RateSeeker.

If you were one of the legions of savers who purchased white-hot I bonds from the U.S. Treasury last year—when decades-high inflation pushed I bond rates almost to 10%—you may now be thinking of cashing out. That's because I bond returns have since fallen back to earth, and you can now earn more on your money elsewhere.

But beware: Not all I bond exit dates are equal, and picking the best withdrawal date can mean the difference between fully maximizing a historic return and leaving money on the table.

Key Takeaways

• I bonds issued from late 2021 to early 2023 have paid the highest rates ever.
• A new rate is set for your bond every six months, based on U.S. inflation rates. Because inflation has come down, I bond rates have dropped dramatically.
• You can cash in an I bond after a year, but if you withdraw sooner than five years, you'll pay a penalty of the last three months' interest.
• Because your rate changes every six months, it's smart to withdraw when your penalty will be based on a lower rate—and avoid cashing out when you'd be forfeiting a high rate.
• The issue date of your I bond can tell you the optimal time to withdraw—even down to the best day of the month to cash out.

What You're Earning on Recent I Bonds

I bonds issued between Nov. 1, 2021 and Apr. 30, 2023 have paid three different starting rates, each offered for six months from the date of issue. Each of those rates was among the three highest ever paid on I bonds since their 1998 debut. These three record rates were:

• Issue dates of Nov. 1, 2021 - Apr. 30, 2022 - 7.12% APY for the first six months
• Issue dates of May 1 - Oct. 31, 2022 - 9.62% APY for the first six months
• Issue dates of Nov. 1, 2022 - Apr. 30, 2023 - 6.89% APY for the first six months

The way I bonds work is that you know the rate you'll receive for the first six months, but then your bonds are assigned a new rate every six months. That rate is based on inflation, and is the reason for the name I bonds. Since inflation has eased significantly—from a June 2022 high of 9.1% down to 3.7% in its latest reading this week—I bond rates have also seen a big drop.

Depending on your issue date, these are the I bond interest rates you'll earn during each 6-month period.

What Happens When You Cash Out I Bonds

The money you put in an I bond cannot be withdrawn for any reason during its first 12 months. But once you reach that mile marker, you're free to cash out. That means many people who bought I bonds in 2022 have reached or will soon reach the date at which they can consider a withdrawal.

The catch is that there's a penalty for cashing in an I bond before five years from its issue date. Fortunately, the penalty is fairly mild. For all I bonds less than five years old, the penalty is equivalent to the last three months' worth of interest.

As mentioned, your I bond rate changes every six months. So that means your penalty varies as well. You'll have a bigger penalty if you withdraw during a high-rate period and a smaller penalty if you withdraw during a lower-rate period.

Minimize Your Penalty to Maximize Your Rate

As you see in the table above, I bond rates from late 2021 through early 2023 are extremely competitive with the rates offered by other investments or savings vehicles. In fact, they look more like returns you might expect from the stock market than from safe, risk-free investments.

Even more important is that you simply can't earn rates above 6% from other safe, predictable investments right now. Even today's very best certificate of deposit (CD), high-yield savings account, and money market account rates are topping out in the 5% range. That makes an I bond rate of 6% or better worth holding onto.

This is where timing your withdrawal comes in. If you cash out your I bond when you're earning over 6%, your penalty will be three months of interest at that rate, and you'll have voluntarily forfeited a three-month chance to earn that stellar return.

Instead, if you wait until you're three months into the lower rate tier, you'll only be giving up the less competitive rate of 3.38% or 3.79%, depending on your issue date. In addition to your penalty being lower, you can also easily out-earn that rate with other, more competitive options. That makes it a smart time to move your money somewhere new.

Best Day of the Month to Withdraw I Bond Funds

Monthly interest for I bonds is always paid on the first day of the month, and is not pro-rated throughout the month. So whether you cash out on Oct. 1 or Oct. 31, you'll receive the same October interest payment, and then nothing more until November. So it's smart to withdraw as soon as possible after the 1st so you can begin earning higher interest elsewhere.

To help you make sense of the best withdrawal dates for your particular I bond, here are two cheat sheets for different issue dates. For I bonds issued before Apr. 30, 2022, the sweet spot for minimizing your penalty and maximizing your return is 21 months after the issue date. But for I bonds issued from May 1 through Oct. 31, 2022, you only need to wait 15 months to hit that optimal withdrawal window.

For I Bonds Issued Nov. 1, 2021 - Apr. 30, 2022

All I bonds cashed in earlier than five years after issue date will be assessed a penalty equal to the last three months of interest.

For I Bonds Issued May 1, 2022 - Oct. 31, 2022

All I bonds cashed in earlier than five years after issue date will be assessed a penalty equal to the last three months of interest.

Where to Put Your I Bond Funds Instead

If you don't need your I bond proceeds for months or years down the road, it's an excellent time to roll them into a high-paying certificate of deposit. CDs are paying record rates now, thanks to the Federal Reserve having raised its benchmark rate to the highest level since 2001 in a bid to fight inflation. When you put funds into a CD, you are locking in that rate—guaranteed—for the full duration of the CD term you choose.

Right now, the top-paying shorter CDs are offering as high as 5.75% APY, with returns in the mid-5.00% range for medium-term CDs (2 or 3 years) and the upper 4.00% range for 4- and 5-year CDs.

Don't want to commit your I bond funds to a CD? You can also move your money to one of the best high-yield savings accounts or best money market accounts, which are currently paying 5.33% and 5.25% APY, respectively. Just keep in mind that savings and money market account rates are variable, meaning they can go down at any time and without notice. In contrast, a CD rate is locked for its full term.

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.