I Bonds Were Wildly Popular in 2022—But Things Have Changed

Last year was a historic period for I bonds. That's because the U.S. Treasury-issued bonds were paying returns of almost 10%, the highest rate they had ever offered. 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 2022, you were lucky to enjoy a 9.62% rate for the first six months. That was then followed by six months paying 6.48%. But I bond rates are indexed to inflation (hence the name), and with inflation cooling significantly this year, the current rate for I bonds purchased during this period has fallen to 3.38%.

Granted, cashing in any I bond that's less than five years old will result in an early withdrawal penalty. But we can help you time it right to minimize the penalty and maximize your gains by moving your money to a higher-earning opportunity.

The Unpredictable Nature of I Bond Interest Rates

The interest rate on U.S. Treasury I bonds is adjusted once every six months and is based on current U.S. inflation rates. When inflation climbed to decades-high levels after the pandemic, this pushed up the I bond rate, registering its highest-ever rate of 9.62% on May 1, 2022.

What anyone personally earns on an I bond is linked to the issue date of that bond. All I bonds issued between May 1 and Oct. 31, 2022, earned that peak rate of 9.62% for their first six months, and it's why so many Americans flooded into I bonds during this historic window of opportunity. Your issue date also determines the best date to cash out.

An important rule of I bonds is that they cannot be cashed in for any reason during the first 12 months. But once you've reached that one-year mark, you can withdraw any time you like. 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.

Today's Best CD Rates Are Higher than What Existing I Bonds Are Paying

With I bond rates down to the 3% range, they're now not nearly as attractive a savings vehicle. Though it's theoretically possible that I bond rates could rise in the near future, I bond rates can never be predicted more than a few weeks before the next semiannual 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 certificate of deposit (CD) rates have soared in 2023—and are likely to stay elevated into the new year. Dozens of nationally available certificates are paying rates of 5.00% or more, with the nationwide leader offering as much as 5.88% 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 by 1 to 2 percentage points, or even more. Unlike an I bond's unpredictable future rates, CD rates are locked in and guaranteed for the full duration of the certificate's maturity term.

The Best Month and Day to Cash in Your I Bonds

If you've held your I bond longer than a year, and feel like maybe you missed your chance to cash out earlier, take comfort in this: For I bonds purchased in 2022, it's been much smarter to wait a bit longer than 12 months before withdrawing your money. So you're in luck.

Here's why. 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 12 months, you'll forfeit the last three months of interest (Months 10, 11, and 12), when your rate is 6.48%. That's an excellent return, and is therefore worth holding onto instead of giving up. But by waiting three more months—cashing out at Month 15—your interest rate will only be 3.38% for those last three months (Months 13, 14, and 15). 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 your particular bond's issue date and in the table below, identify when it will reach Month 15. As you can see, if you bought your I bonds in October last year, New Year's Day is your sweet spot for cashing out with minimal penalty. Still holding I bonds purchased before October? It's also worth waiting at this point for Jan. 1, so that you can collect your January 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	Sept. 1, 2023
July 2022	Oct. 1, 2023
Aug. 2022	Nov. 1, 2023
Sept. 2022	Dec. 1, 2023
Oct. 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 the first day of the next month. So once you've been paid your interest for a particular calendar month, there's no reason or additional earnings to be gained by holding the funds any longer during that month.

Also, 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 start earning interest on that money elsewhere, such as a CD or high-yield savings account. Even if you simply want to cash out and use your I bond funds, there's no financial gain from 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.