Knowing when to redeem an I bond is as important as knowing when to buy. The rules create a few clear decision points.
The redemption timeline
| Time held | What happens if you cash |
|---|---|
| 0–12 months | Not allowed (locked) |
| 12 months – 5 years | Allowed, but lose the last 3 months of interest |
| 5+ years | No penalty — keep everything |
| 30 years | Bond stops earning; redeem it |
See the full rules on the early-redemption penalty page.
Three timing tricks
- Wait past 12 months, ideally 5 years. The penalty vanishes at 5 years. If you can hold that long, you keep every cent.
- Time the 3-month penalty against a low rate. If you must cash before 5 years, the forfeited 3 months are charged at the most recent rate. Cash a few months after a downward reset so the lost interest is at the lower rate.
- Redeem early in the month. Interest posts on the 1st and you earn nothing for partial months, so there’s no reason to wait until late in a month.
When the rate drops
A common strategy: hold the bond through the 5-year penalty window, then redeem whenever its current composite rate falls below a high-yield savings account or a fresh I bond with a better fixed rate. Check what your bond is currently worth with the value calculator, and review how interest accrues so the 3-month value lag doesn’t surprise you. Not investment advice.