Remember when you rushed to buy Series I bonds a year ago, before November 1, 2022, to get that astounding 9.62% rate? You did earn that rate – for the next 6 months. And then, as inflation dropped, rates for subsequent 6-month periods also declined.

And if you purchased an I-bond a year ago at 9.62%, the renewal rate has dropped to 3.95% as of November 1, 2023! A new I-bond buyer, however, would get a rate of 5.27%. I’ll explain why in a minute.

But, it’s time to start thinking about whether it might pay to cash in your old I-bond from 2022, and purchase a new one now – or just switch to buying 6-month T-bills in your TreasuryDirect account.

Complicated Math
Please read carefully as I explain – and you might have to read this twice, as I did when Treasury gave me this explanation. I’ll make a few key points. First, remember there are two components to I-bond interest – a fixed base rate and a semi-annual inflation adjusted rate.

Lifetime fixed base rate on I-bonds.
Over the years I-bonds had a fixed base rate. Some of the older I-bonds (those issued back in 1999-2001) still carry fixed base rates of 3% or slightly higher! Hang on to those old bonds, for sure.

But in recent years, I bonds have carried a ZERO percent fixed base rate! That was the case with the bonds that were issued last fall, paying 9.62% They had a ZERO base rate.

The new series of bonds just issued on November 1, 2023 carry a fixed base rate of 1.3%.
The bonds issued last year when rates dropped from 9.62% carried a 0.4% fixed base rate. And the bonds issued last May 1st carried a 0.9% fixed base rate.

The Big Surprise
If you initially purchased bonds in 2022, with the 9.62% rate, you get ONLY THE INFLATION ADJUSTMENT on those bonds!

Thus, a new buyer of I-bonds today gets the fixed base rate of 1.3% PLUS the inflation adjustment of 3.94% — for a total of 5.27% for the next six months. Holders of older I-bonds with no guaranteed floor rate get only the inflation adjustment of 3.94%.

Is that about clear as mud?! Go back and read it again. And again!

Going Forward
So what do you do about those old I-bonds with a zero floor? You know you’ll pay a 3 months loss of interest penalty if you cash them in early. But maybe now it’s worthwhile.

It will take you about 9 months to just break even if you cash them in now and reinvest in the new bond that will carry that 1.3% floor going forward.

So maybe consider doing that now. It’s easy to cash in and reinvest in a new I-bond inside your account. Or you can use the money to purchase a 6-month T-bill, currently yielding about 5.5%.

Just go to your TreasuryDirect account and log in. Click on “holdings” and then click on I-bonds. The current cash-in value of the I-bond is clearly shown, and that is the amount you will receive after the 3-months interest penalty. Then follow directions to cash it in. Amounts over $10,000 (because of interest earned) will be sent back to your bank account. But you can easily purchase a new bond for $10,000 (or less).

Or you can just sell the bond, ask for your money to either be sent back to your bank account or held at TreasuryDirect, and give orders to purchase a T-bill.

With T-bills, there is no $10,000 limit. You don’t know what the new rate will be in 6-months (just as you don’t know what the interest adjustment on an I-bonds will be). But give instructions to do an automatic renewal at maturity, and keep rolling over your T-bills at maturity.

And, before you do anything about selling your I-bonds, check the fixed floor rate on those older I-bonds and hang on to them. They are still a great prize.
That’s the Savage Truth.