You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.
You must own the bond for at least 5 years to receive all of the interest. You can cash out an I Bond after one year, but if you withdraw it before 5 years, you'll forfeit 3 months of interest.
Once a Series I bond is five years old, there is no interest penalty for redemption.
Key Points. Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.
Six months after your purchase you'll get the new six-month inflation rate, still get the same fixed rate from the start of your I Bond, and your money will grow by your new composite rate.
Can you ever lose money on I Bonds? Your I Bonds will never be worth less than you invested. The bond will increase in value every six months when interest earned is added to your account value. However, you will lose the last three months of interest if you cash out your I Bond during the first five years.
Remember that the 6.89% annualized rate on an I Bond, if you buy in April, isn't locked in for life. It applies to the first six months. Then, you'd end up with an estimated annualized rate of 3.79% for the next six months. After that, another rate kicks in based on inflation.
Another advantage is that TIPS make regular, semiannual interest payments, whereas I Bond investors only receive their accrued income when they sell. That makes TIPS preferable to I Bonds for those seeking current income.
Beware of I bonds' drawbacks
The biggest red flag for short-term investors: You can't redeem these bonds for a year after you purchase them, and you'll owe a penalty equal to three months' interest if you cash out any time over the first five years of owning the bond.
I bonds issued from May 1, 2023, to Oct. 31, 2023, have a composite rate of 4.30%. That includes a 0.90% fixed rate and a 1.69% inflation rate. Because I bonds are fully backed by the U.S. government, they are considered a relatively safe investment.
$10,000 limit: Up to $10,000 of I bonds can be purchased, per person (or entity), per year. A married couple can each purchase $10,000 per year ($20,000 per year total). 7.12% interest: The yield on I bonds has two components—a fixed rate and an inflation rate.
The limit is per person — so if you're married, each spouse is allowed to purchase $10,000 in I bonds (plus the paper bonds if they have a tax return). You can also purchase up to $10,000 in I Bonds for your children, but they must be used for the child, to save for college, perhaps.
May 1, 2023. Series EE savings bonds issued May 2023 through October 2023 will earn an annual fixed rate of 2.50% and Series I savings bonds will earn a composite rate of 4.30%, a portion of which is indexed to inflation every six months. The EE bond fixed rate applies to a bond's 20-year original maturity.
You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.
If you are looking to protect your principal and guard against inflation, I bonds are still worth it long term — even with them down from the eye-popping 9.62 percent rate from last year. Even as inflation continues to retreat, you're guaranteed at least six months of the yield available at the time of your purchase.
I bonds: A low-risk investing strategy
Because I bonds are backed by the U.S. government they carry very little risk. Plus, you'll have the added bonus of protecting your cash's purchasing power.
Special Considerations. Series I bonds are considered low risk since they are backed by the full faith and credit of the U.S. government and their redemption value cannot decline. But with this safety comes a low return, comparable to that of a high-interest savings account or certificate of deposit (CD).
Bonds are relatively safer. Because they're a debt security, they function as an IOU. The company pays you interest, and once the bond matures, you get your principal bank. Bonds aren't completely risk-free; there is the possibility of the issuer defaulting on its bonds or inflation reducing the value of the bond.
Interest on I bonds is exempt from state and local income taxes and, if you qualify, from federal income tax when used to pay for higher education. You can buy up to $10,000 in electronic I bonds per person in a calendar year, with an online account at TreasuryDirect.gov.
After a year like 2022, something as safe as I Bonds or EE Bonds, which guarantee to double your investment in 20 years, might seem like the move, but history suggests we can put more risk in our portfolios.
A higher fixed rate will offer more assurances that the bond will maintain purchasing power in the face of inflation. It will also provide some benefit in times of deflation. The current variable rate is 3.24% which is annualized and added to the current fixed rate of 0.4% for a composite rate of 6.89%.
Individuals, organizations, fiduciaries, and corporate investors may buy Treasury securities through a bank, broker, or dealer.
You can buy I bonds at any time. From May 2023 to October 2023, I bonds are paying 4.3%. Remember, that rate will change semiannually based on inflation.
In any one calendar year, you may buy up to $10,000 in Series EE electronic savings bonds AND up to $10,000 in Series I electronic savings bonds for yourself as owner of the bonds. That is in addition to the amount you can spend on buying savings bonds for a child or as gifts.