Your I Bonds Aren’t Hot Anymore. How to Decide Whether to Hold or Sell.

I bonds were a screaming buy three years ago. They aren’t anymore. (Dreamstime)

Three years ago, they were one of the hottest investments. Now, I bonds have lost their luster, leaving those who bought them back then wondering what to do with them.

Investors who purchased Series I savings bonds from November 2021 to October 2022 initially reaped returns of 7.12% and 9.62%, depending on when they bought them. Earnings on those inflation-protected bonds have shrunk to 2.86%, where the rate will remain through Oct. 31 when it resets. Other investments provide more attractive returns now.

But dumping those I bonds before five years means forfeiting interest from the last three months. And because investors were limited in how much they could buy a year, their I bondholdings make up only a fraction of their portfolios, so what’s the harm in holding them?

Like with most financial decisions, what you should ultimately do comes down to your risk appetite and your personal circumstances, said experts who were also divided on strategy.

What are I bonds?

For years, these under-the-radar investments offered paltry returns compared with stocks. Then in 2022 a confluence of factors made I bonds the hottest ticket around.

The stock market was tanking as the Federal Reserve jacked up interest rates to combat inflation. Treasuries, similarly, took a beating. And here was an investment backed by the U.S. government with principal protection—offering returns that kept up with rising consumer prices.

“It’s absolutely wild for a guaranteed investment—even with inflation as high as it was—to pay 10%,” said Juan HernandezAriano, director of WealthCreate Financial in Houston. “They were unbeatable back then.”

Demand skyrocketed so much that TreasuryDirect.com, the government website where investors purchase I bonds with no fee, crashed in October 2022. Investors, many of them retirees used to getting practically nothing for safe investments for a decade, jumped in.

“Suddenly you can get 8% or 9%, count me in,” J. Christopher Boyd, a certified financial planner with Wealth Enhancement in Hyannis, Mass., recalled his retired clients were thinking.

That initial rate of return, though, changes every half year by design. I bonds feature a composite rate, made up of a fixed rate and a semiannual rate based on the six-month change in inflation.

I bonds purchased in late 2021 and in most of 2022 had a 0% fixed rate, so its composite rate is entirely based on inflation as measured by the consumer price index. As CPI growth eased, so has the rate of return on those bonds. The latest rate is just a tick above the most recent inflation reading.

Sell ‘em

That’s where the calculus comes in for investors. Is cashing out—and swallowing last quarter’s interest—to get into a different investment worth it?

Yes, said Sean Beznicki, director of investments at VLP Financial Advisors in Vienna, Va.

Six-month T bonds and high-yield savings accounts are offering around 4%, he said. Both provide what Beznicki calls “an essentially riskless return with a much better yield” than I-bonds from 2021 and 2022.

“So you would say these are no longer fruitful in your portfolio,” he said.

Sure, you still lose that three months of interest if you sell, but at 2.86%, “when you do the math, it’s like less than 100 bucks,” he said.

Sell ‘em except…

HernandezAriano isn’t quite a sell absolutist. In most cases, it makes sense to sell them, take the penalty and put the cash in the alternatives Beznicki mentioned. But there are rare instances it might make sense to hold, HernandezAriano said.

One example is if your child or grandchild is a few years away from college. The Internal Revenue Services allows you to avoid paying taxes on the earned interest if your I bonds are used toward higher education expenses. The early cash-out penalty remains, though.

“Maybe the cost of putting it somewhere else is not worth jeopardizing that money that will be used for college,” HernandezAriano said.

A risk averse person also may feel better keeping their I bonds, especially if they are betting on higher inflation due to tariffs or they live in a high-tax state like California, New York or New Jersey, he added.

Hold ‘em

Boyd, though, is largely advising his retirees to hold on to those 2022 I-bonds.

Generally, investors didn’t buy huge amounts of I bonds because the government limits purchases to $10,000 per individual a year. If you used your federal tax refund to directly purchase them, you could have bought an additional $5,000.

“It’s not a huge portion of their portfolio, so I usually just say, ‘Leave it,’” Boyd said. “Think of it as an extension of their emergency fund. It’s low risk, low return, but accessible if we need it.”

I bonds now

Buying I bonds now is more attractive since newly issued ones come with a 1.10% fixed rate, so its return doesn’t solely rely on inflation.

Adding in the inflation-based rate, the composite rate for I-bonds now is 3.98%, which is “nothing to sneeze at,” said Beznicki, who still prefers the other low-risk options: T-bills, high-yield savings accounts, and money market accounts.

Corrections & Amplifications

Six-month Treasury bonds yield around 4%. An earlier version of this article incorrectly said they yielded north of 5%.

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