How to Sell Your I Bonds

If you’ve been thinking of selling your I Bonds then you need straightforward guide to help you sell your I Bonds. Read on to learn how to sell your I Bonds, including a video with step-by-step instructions and another video discussing whether you should cash in, keep, or swap your I Bonds for a higher fixed rate of interest.

Understand How I Bonds Work

I Bonds are a type of U.S. savings bond designed to protect against inflation. They’re a blend of a fixed rate and an inflation rate, meaning that the interest they earn changes every 6 months. You probably bought your I Bonds in 2021 and/or 2022 when the inflation rate was quite high and the fixed rate was 0.0%.

Those I Bonds renewed between May 2023 – October 2023 at 3.38% for an inflation rate, and now with renewals from November 2023 – April 2024 they will renew with a 3.94% inflation rate.

Since Money Markets, Treasury Bills, and CDs are at 5% or higher you’re probably thinking of when and how you would cash out your I Bonds.

When Can You Cash Out I Bonds?

You can sell your I Bonds any time after you’ve held them for 12 months or more.  If you cash them before five years, you’ll lose the last three months of interest. After five years, you can cash them without any penalty. If you’re trying to get the most interest you can from your I Bonds then its important to keep in mind the ‘prior 3 months of interest’ situation.

If you bought I Bonds in October 2022, then you just renewed at 3.38% in October 2023. If you cash out in November or December you’ll be giving up 1-2 months of 6.5% interest. You could consider waiting until January 2024 so that when you cash out that I Bond you are only losing interest at 3.4%, not the 6.5%

How to Cash Your I Bonds

The process for selling your I Bonds is quite similar to how you bought your I Bonds.

Log in to your TreasuryDirect account, select the bonds you want to cash, and follow the on-screen instructions. The money will be deposited directly into your linked bank account.

I show you step-by-step instructions, with a screenshare showing how to do this within Treasury Direct here:

Taxes and I Bonds

When you sell your I Bonds, remember that you’ll owe federal income tax on the interest you’ve earned. However, there’s some good news: I Bonds interest is exempt from state and local taxes.

You probably have not chosen to pay taxes on the interest annually so you probably deferred all the interest until you cash the bond. Keep this interest in mind, especially whether you should do any additional tax withholding or estimated tax payments.

There could also be tax benefits for using I Bonds for education purposes, as long as you follow the rules mentioned here: How to use I Bonds for Education

It’s a smart move to consult with a tax professional before you do anything that affects your tax situation.

What will you do with your I Bonds?

Before cashing your I Bonds, think about why you’re doing it. If you’re using the funds to support your retirement lifestyle or address an immediate need, it’s understandable. But if you’re thinking of selling just because you’ve heard of a new investment opportunity, weigh the pros and cons.

Remember, I Bonds provide protection against inflation, which can be especially useful during retirement. If you’re uncertain about selling, chat with a financial advisor to ensure you’re making a decision aligned with your long-term goals. You could even consider swapping your older 0% fixed rate I Bonds for the new 1.3% fixed rate I Bonds.

Selling your I Bonds is a significant decision, especially as you navigate the retirement journey. Remember to weigh the pros and cons, stay informed, and consider seeking advice from professionals.

Of course there’s more to retirement and investing than just getting an interest rate through I Bonds. Make sure to set yourself up for retirement success by checking out my free video course on how to create your retirement plan.

More I Bonds Resources


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