I bought 10K of I bonds in March 2022 which are now worth almost 12K (this excludes the last 3 months of forfeited interest). I recently bought a house at 5.75% interest and was considering selling the bonds to pay off some of the principal. I bonds pay interest that are dependent on interest, but in the long run, I doubt that interest will be more than 5.75% but you never know with this economy……………
Is There Any Point in Holding Onto My I Bonds?
byu/Clear_Entrance8126 inpersonalfinance
Posted by Clear_Entrance8126
5 Comments
Honestly I’d cash them out and throw it at the mortgage. 5.75% guaranteed return vs whatever the I bonds end up paying… that’s a pretty easy call imo.
Remember, 5.75% is BEFORE taxes. You’re only netting 4.3% if you are in a 24% tax position. Cash out the iBonds and pay down the mortgage principal…
Ibonds haven’t been a good investment for years.
I won’t advise on using the money for the mortgage. You’ve got to determine your own risk/reward for that.
Do you have appropriate emergency funds? These I bonds while not liquid today, can be liquid within a few days so they can be part of your emergency fund.
However, March 2022 I bonds have a 0.00% fixed rate plus 3.12% inflation rate = 3.12% total. A regular “high yield” savings account will usually beat that inflation rate. If nothing else, I’d redeem these and put them into a “high yield” savings account.
One thing to think about is that the 3 months of forfeited interest goes away in 11 more months. So if you hold them until March of 2027, you get 4 months of interest in that last month. That effectively takes the interest rate for this last year from 3.12% to closer to 4% (keeping in mind that the rate will change twice in that time period).
Also, I’d probably wait until at least May to sell, just to see what the new variable rate will be. I’m not sure how much the war/oil prices might affect the inflation calculation, but there is a chance the 3.12% we are currently at may spike up a bit for the next 6 month period.