When & How To Redeem I Bonds on Treasury Direct (2023 Guide)
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- Опубликовано: 24 июл 2024
- Series I Savings Bonds are incredible cash investments to help protect your money against inflation! That said, their yields have fallen given the decrease in inflation numbers. In this video, I'll show you when & how to redeem your I Bonds on Treasury Direct to maximize your savings!
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0:00 Introduction
0:13 Tutorial
1:19 When To Sell I Bonds
2:24 Back To Tutorial
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Another Super Video! I must also redeem some I-bonds in January 2024. I'll be anxious to see what the CPI inflation number and new I-bond interest rate will be come November. I don't really think inflation is under control and over with as yet. I think now that we are past the month of June (June of 2022 was last year's peak of inflation, so this last CPI number and inflation rate was low for 2023). But I think it may start crawling back up again.
Eric what do you think about this news out today? See below:
"Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.
Fitch had first flagged the possibility of a downgrade in May, then maintained that position in June after the debt ceiling crisis was resolved, saying it intended to resolve the review in the third quarter of this year. With the downgrade it becomes the second major rating agency after Standard & Poor’s to strip the United States of its triple-A rating."
1. Even if inflation creeps back up as you put it, it's highly unlikely to go up enough to make I Bonds worthwhile at this point. Treasuries, CDs and even money market funds are paying more than I Bonds and are much more liquid.
2. Fitch is full of it. Despite all the problems the US faces it is still the most creditworthy country on earth and there's no reason to downgrade it. The US dollar is still the reserve currency. If the US isn't AAA, no country is.
Great question, Rose, and I think it deserves a lot of nuance.
Personally, I'm not too worried about decreases in a country's credit ratings. It is true that the Big Three (S&P, Moody's, and Fitch) are major players in assessing credit risk, and sometimes they do bring to light valid concerns about a company or country's behavior. That said, they were infamously criticized for their favorable pre-2008 ratings of subprime mortgages & companies like the Lehman Brothers, so many people have lost trust in what they have to say even if they are still present financial powerhouses. They can still make mistakes.
An AA+ rating is not necessarily significantly detrimental either. For example, I believe Apple & Alphabet are labeled as AA+ under S&P, and I'm sure most people would believe that these companies will continue earning loads of free cash flow and pay off any debts. For instance, as of March 2023, Apple was sitting on $55 Billion in cash on hand. Similarly highly rated countries include Australia and a few in Europe. I think such companies & countries are still in a good spot, and I believe these examples showcase that an AA+ rating is still very favorable.
So while I wouldn't get hung up on a AAA to AA+ downgrade, I think it's still important to assess whether Fitch's overall sentiment on US debt is reasonable.
They argue that "down-to-the-wire debt ceiling negotiations" and "steady deterioration in standards of governance" will affect investor sentiment, and that is largely objectively true. Every few years, there are constant partisan battles in Congress about national debt. And although we've always raised it in the end, it's not without stuffing as many partisan bills & drama until the 11th hour. The growing political divisiveness is not particularly helpful, and such procedures do increase investor or debt holders' uncertainty.
Another valid concern is fiscal deterioration. It is also true that the US added around $8 trillion of debt since the pandemic, and we've largely operated on an ever increasing budget deficit. Of course, one could argue that these are one-time events, but the overall trend is still our national debt increasing while still having a budget deficit.
Debt is not necessarily a bad thing since it could be a reflection of a growing economy. As Warren Buffet argued, the most important ratio is the debt-to-GDP ratio. As long as GDP outpaces the national debt, we're still reasonably fine. Unfortunately, the debt-to-GDP ratio has increased drastically over the decades, and we're well over 100% (see here: fred.stlouisfed.org/series/GFDEGDQ188S)
So while I wouldn't care about a credit downgrade, I think overall concerns regarding the nation's ability to conduct reasonable actions are understandable. Much like what Murray mentioned, the US is still one of the powerful countries in the world and has a strong credit history. That said, a more cooperative government, a more sensible national budget, and a more productive economy would do wonders towards improving investor sentiment, and I'd largely agree with that take. I think most Americans would be happy if politicians played less partisan games and actually worked for a living 😆
@@murraypassarieu9115 Thanks for the reply. The national debt being so high does concern me though.
@@EricTangOfficial Thank you for the detailed reply Eric. The stock market took a hit today and may continue it's sell off in the coming days. I don't know. Maybe a correction was needed and this was the catalyst. The very high national debt does concern me though. Although it has for a long time. Our debt is higher than our total GDP too. That can't be good. But I am surely no economist.
@@rosenasser5943 it concerns me too but unless the government is willing to raise taxes and actually collect them on the rich, there's no way to get it into balance; as long as rich people can hide their money in the Cayman Islands, I don't think anything is changing.
thank you, great info in your video was looking for
Thanks for this!
Useful info. Thank you!
Thanks!! 🙂
thank you! your vid helped a lot!
Glad to hear it!
this was super helpful, thank you
Glad it was helpful!
Terrific video, Eric! I'll add that I Bonds can be redeemed and exclude due tax on Federal interest under strict IRS conditions that the funds are used to pay university expenses for the holder or for a dependent. I probably wouldn't hinge my decision to sell based upon that feature, but if I had a child in college right now, it might factor into my decision.
Absolutely a wonderful point, Doc! Those higher education tax benefits could be really helpful for a select group of investors out there!
The markets remain doubtful that the Federal Reserve will keep to its plan to raise interest rates until inflation is under control, even if bond yields are rising while stock prices are falling. What is the best method to profit from the current bear market while I'm still considering whether to sell my $401,000 worth of stocks?
I advise you to seek professional advice since building a strong financial portfolio is more challenging. Your long-term objectives and budgetary preferences can be catered to in the ideas you get after that.
The best market strategy at the moment is working with a respected investment coach. I've been in touch with a coach for a time now, mostly because I lack the depth of understanding and mental toughness to deal with these ongoing market conditions. During this recession, I made about $700k, proving that the market is more complicated than most people think.
@@harod033 How does the coaching process work, mate?
@@godof-ou1dw It's amusing that you brought it up since I completely understand. Look up Ruth Loralann Brennan; she garnered a lot of coverage in 2020. I'm not sure whether I can mention this. My portfolio is also managed by her.
@@harod033 I just looked up this person out of curiosity, and surprisingly she seems really proficient. I thought this was just some overrated BS, I appreciate this.
Hi. Do you have also Information about Edison Company Bonds? And how to redeem them?
Good info. iBonds are so confusing. Will sell as soon as I review. Thanks!
Definitely! A few of my friends cashed out some I-Bonds just yesterday to take advantage of this month's interest rates!
Thank you for the chart. I hope you do another 2024 video :)
I was interested in selling some of my I bonds I bought in January last year! I should probably get onto it 😅
Hope it all goes smoothly for you 😆
Is it possible to cancel your redemption once it has been initiated?
Excellent video! The treasury direct website is a little confusing so it's great to have this. Also, I was about to cash out 1 week before the end of the Month. I'll wait for September! Great advice.
Nice one! Hope you were able to redeem those I Bonds earlier this month!
@@EricTangOfficial Yes, I did. I noticed the entire amount from the bond transferred over. I thought there was a 3 month penalty for withdrawing before 5 years. Was I wrong about that? Or is that going to come up in my taxes? Thanks again!
Good question! The 3 month penalty was already calculated & automatically removed prior to the redemption. This is reflected by the balance of the bond. You might notice that when you first purchase an I-Bond, you'll see no interest earned within the first 3 months. This would hold true for the first 5 years. After the 5 year mark, the 3 month penalty is gone and it will be reflected in the balance (some viewers notice a sudden spike in interest earned).
@@EricTangOfficial Got it! I just subscribed, hope to see more like this one!
Hello Eric! Thank you for your very helpful video. I have a few questions before redeeming my I-bond: 1) Do I have to close my Treasury Direct account if I withdraw all the money that I have in there or can my Treasury Direct account be left open with zero dollar? 2) What if I just don't withdraw and keep the I Bonds that I bought in August 2022, will it continue to earn Interest after 15 months? 3) After I make the withdrawal, how will I report the interest when I do the taxes (at tax time next year), does Turbotax have the steps to report earnings from I-Bonds? I appreciate very much your reply that will help me decide on how I want to proceed. Thank you very very much!
Great question & sorry for the late reply!
1) Nope! Your Treasury Direct account can still be active even with a $0 balance.
2) If you keep your I-Bonds there, it'll still continue earning interest for up to 30 years. Best of all, the interest you earn can be deferred from taxes until many years later. So you can withdraw whenever you want (and whenever is most profitable for you)!
3) Generally speaking, Treasury Direct will send you a tax-form come end of January (or at the start of tax season). You can use these forms to input in your taxes.
Thank you making this video.
Can you please tell me if I redeem the entire balance which includes principal and the interest amount, would my account be closed as the balance would be $0 ???
Thank you 🙏
Great question! If you redeem the entire balance, the redeemed security would have a remaining balance of $0. However, the Treasury Direct account itself will still be active, and you'd still be welcome to buy other Treasury Securities or even more I Bonds in the future!
thanks for the video! in your example, $280 redeemed, where did the -3 month interest reflect in the tutorial? or is 280 including the negative prior 3 months already.
Great question! The 3 month simple interest penalty is already deducted from the redemption value. In other words, the real value of the I Bond is greater than $280 (likely around ~ $300). However, TD automatically deducts 3 months worth of interest, so only $280.20 will enter my bank account.
Great concise informative video. One question, if I have December bonds, is it not a good idea to sell in October (I didn't see this video in September)? I don't understand why certain months are ideal to sell if you bought at a certain month. Is it just because it's in the 6-month increment?
Great question & sorry for the late reply! Because we are selling bonds early (within the first 5 years), there's a cash penalty where we lose the last 3 months worth of interest. Ideally, we want to minimize this cash penalty as much as possible. Therefore, it's generally better for most investors to lose out on 3 months of 3.38% APY compared to losing out on 3 months of 6.48% APY.
Hi Eric, Enjoy learning from your videos. I bought $10,000 of IBonds in May 2022. Unfortunately I cannot redeem them on August 1st because I just caught your video today 8/12. It's not the end of the world since I have a few T-Bill ladders going, but who likes getting a lower return on money especially since we were robbed of higher interest rates not to long ago. Any thoughts?
Great question & sorry for the late reply! For I Bonds bought in May 2022, it seems like they're offering 3.38% APY today given the 0% fixed interest rate. Personally, if I was a short term saver, I'd agree that Treasury Bills would be a lot more interesting right now. The breakeven point if one was to take the 3 month penalty & invest in Treasury Bills (5.38% APY) instead would be a little over half a year. Given that rates seem to have stagnated for the rest of the year, this could be an attractive choice.
For longer term savers though, it's kind of up in the air. Who knows what might happen with inflation, and some investors do seem to deposit $10,000 each year regardless of their rates. If they withdraw some I-Bonds bought in 2020-2022, it's unlikely for them to be able to deposit money again given yearly purchase limits. For those investors, getting a 3.38% yield is decent enough to not feel bad.
Hard to say!
Hi Eric, Does Tressury Direct provide a personal statement every month? I recently sold an I bond and need a statement to show to the loan provider.
For I-Bond redemptions, a 1099-INT will be issued by January 31st come tax season. TreasuryDirect does not provide paper savings bonds or paper account statements. If you do want a paper copy of your account information though, you can use the browser's toolbar to print the relevant pages in your account that show your holdings.
If you create an account would you be able to find old bonds or locate them easier? Just seeing if there’s easier way to locate lost or stolen bonds in your name
Yes & sorry for the late reply! Treasury Direct offers "Treasury Hunt," an online search tool to find missing Treasury securities or interest payments. You can find more about them here: treasurydirect.gov/savings-bonds/treasury-hunt/
Hello Eric, thanks for your very informative video about selling I bonds. Can you tell us how to redeem a gifted I bond? I bought a I bond for each of my family members. We would like to sell them now and reinvest in CD's which are paying more. Thanks for your help!
Great question! If I remember correctly, Gifted I-Savings Bonds can only be redeemed when they are delivered to the recipient's Treasury Direct Account. In the case of minors, they would need a Minor Linked Account under a parent or legal guardian's Treasury Direct account. Once the gifted I Bond is delivered, the recipient should be able to redeem their I Bonds as usual.
Thanks Eric, you were exactly right!
@@EricTangOfficial
Are you planning to sell any more I bonds later this year? or will you wait until the new rates announce in nov?
the next rates will almost certainly be lower, possibly much lower, than the current ones. As soon as you are 3 months past the date when your I Bonds stop paying over 6 percent, get out. Treasuries are paying more than I Bonds now as are CDs.
I haven't officially decided yet, but there's a strong likelihood I'll be expecting from my $10,000 I Bond from November 2021. As Murray mentioned, there's just a lot of better alternatives for the time being. Of course, for longer term investors, one could make the argument that a high enough fixed interest rate (remember that I Bonds have two rates) could also be somewhat attractive. That said, I haven't contributed for 2023 yet, so I can always buy back in as necessary!
Can someone tell me if the figures on the TreasuryDirect web site have the 3 month penalty figured in. Video Ex. Amount = $250 | Current Value = $280.20. Is the $280.20 exactly what will go to your account, or will a penalty be applied to the $80.20 that was earned thus far? Thank you.
Great question! Assuming you have held the I-Bonds for at least 12 months, the number on TreasuryDirect will have the 3 month cash penalty already calculated in. So the $280.20 current value is exactly what will be deposited into your bank account.
I have a question?? Can I transfer my ibonds to a treasury bond without redeeming the ibond back to my bank or do I have to redeem my ibond back to my bank then re-desposit into a treasury bond?
Great question, Regina! You can redeem the I Bond into a Zero-Percent Certificate of Indebtedness (Zero-Percent C of I) which acts as a no limit Treasury checking account. This way, you can redeem all Treasury securities without it returning to your bank account. However, it does not earn any interest. Therefore, most individuals would still redeem the I Bond back into their bank account and later re-deposit into a Treasury Bill, Note, or Bond at their choosing. Less paperwork!
How easy it to change your payment destination?
Good question! You can always change your payment destination very easily during the "Redemption Request" page (3:24).
Hi Eric. I was redeeming bonds for 2 hrs. last night. I don't want to get into timing for interest. On my wife's very last account, I entered the account number , then the OTP I got in email. Failed 2X. I logged out of the website , then logged in using the very same account number for one more try. Failed again on the OTP. Never got to the password stage. We did 26 bonds prior to this last and 27th one. I saw nothing about being locked out. It is baffling because we did it slowly and double checked account numbers and the OTP's. If I am locked out , will it tell me ? I really don;t want to go to call center hell. Thanks and great video.
So sorry to hear that you're running in trouble, Ed! I haven't been in that position before, but here's a tip I've used to ensure a smoother process:
I have much better luck copy & pasting the OTP from my email to the account compared to manually typing it. Given that some of the passcodes are rather long and filled with upper and lowercase letters, it's really easy to get mixed up.
Hope that helps! Since you're getting an OTP message to your email, it seems like your Account Number is correct.
Additionally, if you use a Mac (Apple's computer system), KeyChain is a password manager that allows you to keep accounts & passwords saved locally on your device and protected via a system password or biometric key. It's generally regarded as a safe way to quickly & accurately log into accounts. That way, you're always (at least) entering the right Account Number (and later the right password).
@@EricTangOfficial Thank you so much for your thoughtful reply Eric.
@@EricTangOfficial I just redeemed the last acct. using your suggestion. It did work, but this unforgiving TD site made me change the password AND answer 3 security questions. I have to put all of this in a book. There is a lesson here and a video here too about when and why things go wrong. Be well young man .
How do you pay taxes upon redemption?
Great question! You'll be issued a 1099-INT by January 31st of the following year in which you redeem the I-Bond.
I am filipino citizen. I want to redeem my patriot bond thru my dollar accounts in the philippines.but how?do i have to fly in USA?? I AM ALREADY SENIOR CITIZEN 66 YEARS OLD.PLEASE HELP
At what point the three month interest penalties will be enforced when redeem a I bond? If I put money into C of I account and purchase other securities, do I get the penalties? I suppose It will show on 1099 form at the end of year? Thank you for your response😂
Great question! The 3 month penalty is already calculated & reflected in your I-Bond balance. For example, if you observe the balance of a recently deposited I-Bond, you'll notice that it "does not earn any interest" for the first 3 months. At the 5 year mark, you may notice a "sudden spike in interest" because the 3 month penalty is lifted, increasing your nominal I-Bond value significantly. The government wants to insure you pay your penalty, so they'll take it automatically instead of waiting for us nice folk to report it on our taxes!
@@EricTangOfficial I see. The government is more steps ahead 😆. Thanks for your reply.