Hold off on Series I bond rollovers
Tuesday, May 2nd, 2006
Categorized as: Yesterday's News (old post archive)
I have Series I bonds purchased in May 2003, Nov 2004, and Oct 2005. I don’t need this money for at least five years. Does the new 1.40% fixed base-rate make it worthwhile to cash my Series I bonds and buy new ones?
My advice is to hold off on any rollovers until next October. I have two reasons.
The first is that since only bonds less than five years old are worth rolling over (the older ones all have base rates of 3.00% or more), you’ll pay a penalty of your most recent three months interest when you redeem the I bonds you have now. You want that penalty to be three months of low interest, not three months of high interest.
Because of the way Savings Bond rate periods work, some I bonds just started earning the high inflation rate announced last November. You want to savor that high rate to the last drop, then wait through another three months of low rates to give up as the early-withdrawal penalty. If you were going to do a rollover, this table shows the earliest date you should act:
Don’t roll over I bonds before these dates!
|Issue month||Don’t rollover before|
|Jan or Jul||Oct 2006|
|Feb or Aug||Nov 2006|
|Mar or Sep||Dec 2006|
|Apr or Oct||Jan 2007|
|May or Nov||Aug 2006|
|Jun or Dec||Sep 2006|
The second reason is that interest rates may continue to rise. By October we should have some idea whether the base rate announced next November could be even higher than 1.40%. If it is, you’ll be sorry you hurried to switch.
Some I bond investors also need to remember that I bonds have maximum annual purchase limits. Rolling bonds over could limit your ability to make new investments.