Want to Cash Out I Bonds? Here’s What You Need to Know

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A couple looking worried about money, with a laptop and bills.

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You need to cash those bonds out carefully.


Key points

  • If you need money, you may be tempted to cash out some investments.
  • Cashing out I bonds could make more sense than liquidating stocks, but it’s important to understand the rules involved.
  • You can cash out I bonds after a year, but if you’ve owned them for fewer than five years, you’ll lose your last three months’ worth of interest.

You may be in a place where you need money, whether to purchase a car, update your home, or use to cover everyday bills. Now you could go out and borrow the money you need. But doing so means signing up to pay interest. And if you have money tied up in investments, it could make more sense to liquidate some of your holdings before taking on a loan that comes with a hefty interest rate attached to it.

Now the investments you have might range from individual stocks to exchange-traded funds (ETFs) to bonds. And within the latter category, you may own some I bonds.

Most investments are fairly flexible when it comes to cashing out. But I bonds aren’t as flexible. And so it’s important to know the rules if you’re looking to redeem your I bonds, take the money, and run with it.

How cashing out I bonds works

You’re technically allowed to cash out I bonds once you’ve held them for a full year after purchasing them. But if you cash out I bonds prior to having held them for five years, you’ll be penalized to the tune of your last three months’ worth of interest.

Whether that’s a big deal or not depends on how much I bonds are paying. Right now, I bonds are paying close to 7% through April of 2023 thanks to higher inflation levels. That’s a really generous rate. And if you have a larger sum of bonds, losing out on three months of interest is something you may not want to do.

Cashing out I bonds may be your best bet

As much as you might dislike the idea of giving up interest, if you have to liquidate an investment to free up cash, it could be more beneficial to redeem I bonds than to cash out stocks or ETFs in a brokerage account right now. The reason?

The stock market has lost a lot of value this year, so chances are, if you sell off individual stocks or ETFs, you’re looking at taking losses. If you sell your I bonds before having held them for five years, you’ll lose some interest. But that loss may be negligible compared to the loss you might take by unloading stocks or other more volatile assets when they’re way down.

One major perk of buying I bonds is that you’re getting government-backed securities. So the face value of your I bonds is set up to hold steady even during periods when the value of a given stock might plunge from $100 a share to $50 a share.

As such, cashing out I bonds may be your least financially painful option right now. And if you’ve held those bonds for five years already, you won’t even face a penalty at all.

Of course, if you cash out I bonds and take the money now, you’ll lose out on the chance to keep cash invested in an asset that’s stable and currently paying a generous amount of interest. But even so, liquidating stocks could be a financially catastrophic move right now due to the state of the market. So what you lose by cashing out I bonds, you might gain by being able to leave your stock holdings alone until they’re able to recover.

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