How to Sell a Bond

We sold all of our I Savings Bonds as part of an effort to simplify our lives (see #14 in Simplifying Your Financial Life). It wasn’t as bad as I expected. This post will explain how to sell your savings bonds.

What is II Bond?

The US government offers two types of savings bonds: EE (nominal) bonds and I (inflation-adjusted) bonds. You buy both directly from the government on the TreasuryDirect website. I-bonds are a type of bond that is indexed to inflation, which is similar to TIPS. But you never lose principal on them, you don’t get phantom income from them, and you don’t pay any tax on them until you sell. Like EE bonds, you must hold them for at least one year, and you give up three months of interest if you sell them after a holding period of less than five years.

You can hold the bond for 30 years. I-bonds have two components to their product—a fixed interest rate and an inflation adjustment tied to the Urban Consumer Price Index (CPI-U). So when inflation is high back in 2022-2023, I Bonds look very attractive as an investment. At one point, they were paying more than 9% risk-free while stocks tanked. FOMO set in, and we decided to make our financial lives more difficult to earn 9% on a very small portion of our portfolio.

More info here:

Bonds and TIPS: Which Inflation-Indexed Bond Should You Buy Now?

Why Sell Your II Bond?

II Bonds sounds amazing, doesn’t it? Why would someone want to sell themselves?

The biggest problem with I Bonds is that you can only buy $10,000 a year in them. It is okay if you have a small portfolio and start early to invest in it every year. After twenty years, you could have something close to a $250,000 portfolio in it. But they don’t work very well for large portfolios. The limit is actually an individual or organization, which means you and your spouse and your trusts and your businesses can all buy $10,000 worth of I Bonds each year. That’s what we did for a few years starting in 2021.

But you must manage a separate account for each business. And even when you put it all together, there wasn’t enough money coming in to move the needle, so we decided to simplify. By discarding I Bonds and transferring a few TIPS held in one of the TreasuryDirect accounts, we can close three financial accounts. The good news is that disposing of I Bonds is easier and faster than transferring TIPS to our Vanguard brokerage account. It took less than five minutes in total to sell all the I Bonds in three different accounts. We’ll just move that money into the TIPS ETF (SCHP) that we use to keep the portfolio balanced.

Note that there is a relatively new way to buy “unlimited” I Bonds (via a gift box), but it first appeared to me that you could still bring $10,000 to the recipient per year. It will still take 30 years to deliver a $300,000 I Bond to your spouse, even if you buy it all up front. And since they only last 30 years, there’s obviously no limit, even if it makes Bonds a better option for some people.

However, in further correspondence with WCIer, he told me that, at least for now, there is no annual limit on how many I Bonds can be brought in per year, although you can only bring in $10,000 per day. I asked him to post a guest post on it. In reading more about the TreasuryDirect Gift Box FAQ, there are a few other concerns to be aware of, but it appears that you can buy an unlimited amount of I Bonds right now through this slot. I wouldn’t be surprised to see it close, and we’re still happy to get rid of three accounts in our lives, even if the main reason to ditch these I Bonds obviously has a way of working. But this can definitely change the calculation of others, at least as long as this hole is open. Hopefully, it just expands rather than closes.

How to Sell Your II Bonds

Log in to your TreasuryDirect account using your username, the “OTP” emailed to you, and your password. Your screen should look like this.

Click on the “ManageDirect” link, and it will take you to this screen:

Click on “Use securities,” and you will go here:

Click on what you want to sell—in this case, the Bond, which is your entire account—and hit “Submit” and go here:

Click on the ones you want to sell (all to me), and press “Send.” It then gives you a big, long, bottom page that looks like this.

Click “Continue,” and you get the same, lower page that looks like this:

Then press “Send.” Voila—your I Bonds are sold, at least the ones in this account. The confirmation page shows that the money will go into your linked bank account within two business days.

It’s easy peasy. Of all the complaints one hears about dealing with TreasuryDirect, this might be the easiest thing I’ve ever done there. I cleaned three accounts in less than five minutes. I’m sure it will take months to pass those individual tips on to Vanguard, though (it took most of a week to get the Medallion Signature Confirmation needed for the paperwork). I think another option is to keep the TreasuryDirect account we have until it all matures in the next 5-10 years, but I’d rather put in the work now to avoid having to go back into TreasuryDirect to check myself.

More info here:

How Do I Transfer Bonds to Heirs?

How Did We Do With the I Bond?

We have now made a round trip with our I Bond money. Here are the details from the investment spreadsheet:

We started buying them four years ago, bought more every January, and sold them all after owning them for more than one year but less than five years (so we lost three months of interest on each). We didn’t pay taxes on the proceeds as they grew, but now that we’ve sold, we owe federal income tax at regular income tax rates.

Our total profit was $15,080, for an annual return of 4.32% before tax. After applying our estimated tax rate of 37% + 3.8% = 40.8%, we earned $8,927.36, an after-tax return of 2.62% per year. Considering inflation back then was 4.18% annualized, it’s a little hard to get too excited about that return. Especially when you compare it to the huge growth in US stocks during that time. I’m glad I got rid of the three accounts, though.

WHAT DO YOU THINK? Do you have questions about the process? Are you keeping your I Bonds, or do you want to sell them?