I Bond Swap 2026: Trade Your 0% Bonds for the 1.40% Rate?

On October 28, 2022, Marcus spent his lunch break refreshing TreasuryDirect until it finally took his $10,000 order for I bonds. He wasn't alone. CNBC reported that Treasury sold $994 million of I bonds that Friday, a single-day record, and 95,482 people opened new accounts trying to grab the 9.62% rate before it expired. (Marcus is a composite, but those numbers aren't.)

Four years later, his bond is worth about $11,870 and it's earning 3.34%. The headline rate everyone fought over is long gone. What he's left with is the part almost nobody paid attention to in 2022: a fixed rate of 0.00%, locked in for 30 years.

The Treasury's October 30 announcement changes the picture for anyone holding I bonds from 2020 to 2022. New I bonds bought from November 1, 2026 through April 30, 2027 carry a 1.40% fixed rate, which Tipswatch's David Enna notes is the highest since November 2006. For a lot of people, cashing out an old 0% bond and buying a new one is the best I bond move available in years. For others, it's a tax bill they don't need. The math decides.

How I bond rates work (the 60-second version)

Every I bond pays two rates stacked together. The fixed rate is set the month you buy and never changes. The inflation rate resets every six months for everyone, based on the Consumer Price Index.

For the current period, inflation from April through September 2026 ran 2.04%, which annualizes to 4.08%. Add the new 1.40% fixed rate and you get a composite of 5.51% for the first six months on any bond bought now.

Older bonds have a timing quirk. Your bond's inflation rate only resets on the six-month anniversary of the month you bought it. Marcus bought in October, so his rate changes every April and October. Right now he's still on the rate set back in May (3.34% with his 0% fixed), and he moves to 4.08% in April. A new buyer gets 5.51% starting today. Once both bonds are past their first six months, they're tracking the same inflation, and the new one keeps earning about 1.40 points a year more for as long as you hold it.

Which old bonds are worth swapping

The fixed rate on new I bonds sat at 0.00% for five straight six-month windows, from May 2020 through October 2022. Those were the years I bonds went viral, so if you bought during the hype, your fixed rate is almost certainly zero.

The other rule that matters here: if you cash an I bond before it's five years old, you give up the last three months of interest. After five years, there's no penalty. That makes your purchase date the whole story.

If you own I bonds from the late 1990s or early 2000s, look up their fixed rate before you touch anything. Some of those pay far more than 1.40%, and you'd be trading down.

Running the numbers on two common situations

Marcus: bought October 2022, under five years

If Marcus cashes out in early November, his bond is worth roughly $11,873. Because it's not five years old, he loses about three months of interest, which works out to around $94. He walks away with about $11,780.

Of that, about $1,780 is interest, and it all becomes federal taxable income for 2026. I bond interest is exempt from state and local income tax, so in the 22% federal bracket he owes roughly $390. That money isn't a new cost so much as an early one. He was always going to owe tax on that interest whenever he cashed the bond. Swapping just moves the bill to April 2027.

Then he buys $10,000 of new I bonds at the 1.40% fixed rate. The leftover $1,780 can sit in a high-yield savings account until January, when his 2027 purchase limit opens up.

So what does the $94 penalty buy him? I ran $10,000 forward 10 years at a 0% fixed rate and at a 1.40% fixed rate, assuming inflation averages 2.5%. The 0% bond ends up around $12,820. The 1.40% bond ends up around $14,740. The difference is roughly $1,900 on the same $10,000, and it grows the longer he holds. Even if inflation averages just 2%, the difference is about $1,830.

Paying $94 to earn about $1,900 more is an easy call, even after you account for paying the tax a few years early.

Priya: bought January 2022, five years old in January

Priya (another composite) bought $10,000 in January 2022, when new bonds paid 7.12% to start and 0% fixed. Her bond turns five on January 1, 2027. By then it's worth about $12,467.

She doesn't need to rush. If she cashes out in early January, there's no penalty at all, and the $2,467 of interest lands on her 2027 tax return instead of 2026. Then she buys $10,000 of new bonds using her 2027 limit, any time before April 30.

And because the 1.40% window straddles two calendar years, she can do even better. If she has $10,000 of cash sitting in savings, she can buy new I bonds with it in November or December under her 2026 limit, then do the swap in January under her 2027 limit. One person ends up with $20,000 locked at 1.40% fixed. A married couple can double it, since each spouse gets a separate $10,000 limit.

What the swap costs you

The $10,000 cap is the real constraint. Treasury limits electronic purchases to $10,000 per person per calendar year, and the old trick of taking up to $5,000 more in paper I bonds through your tax refund ended January 1, 2025. If you have $40,000 in 0% bonds, you can't swap it all at once. Start with the bonds that are past five years, since those cost you nothing but the tax.

The new bond is also locked for 12 months. You can't cash it before then for any reason, and it starts its own five-year penalty clock. If there's a chance you'll need the money next summer, leave it where it is.

Then there's the tax. Pulling years of interest into one tax year can push you over an income line that costs more than the swap earns. If you're on an ACA marketplace plan, extra income can shrink your premium subsidy. If you're 63 or older, 2026 income sets your 2028 Medicare premiums. A $3,000 bump in reported interest is small in most budgets but large right at one of those cliffs.

The last cost is quieter. If you were planning to hold your old bonds until retirement and cash them in a lower tax bracket, swapping now means paying tax at today's rate instead. For someone in the 24% bracket now who expects 12% later, that difference on $2,500 of interest is about $300, which eats into the gain.

Is an I bond even the best place for this money?

Before you swap, look at TIPS, the Treasury's other inflation-protected bond. As of October 30, the five-year TIPS was yielding about 2.31% above inflation, according to Tipswatch. The I bond's 1.40% gives up 0.91 points of that. Meanwhile, a one-year Treasury bill paid around 4.42%, which the I bond's 5.51% opening rate beats for now.

The I bond's advantage is flexibility. After the first year, you can cash an I bond for its full value plus interest whenever you want, and you can defer the federal tax until you do. A TIPS you sell before maturity can lose value if rates rise, and in a regular brokerage account you owe tax on the inflation adjustment every year, even though you don't receive it as cash.

My take: for long-term money inside an IRA, a TIPS ladder pays more. For cash you want safe, inflation-protected and reachable within a year or two (a second-tier emergency fund, a house down payment a few years out), the 1.40% I bond is one of the better deals Treasury has offered in two decades.

How to do the swap without losing a month of interest

I bonds add interest once a month, on the first. If you cash out on the 20th, you get nothing for those 20 days.

Buying works the opposite way. A bond's issue date is the first of the month you buy it, no matter which day you pay. Buy on November 24 and you get credit for all of November. So if you redeem and rebuy in the same month, the new bond's full-month credit makes up for the partial month the old one loses. If you're only redeeming, do it in the first few days of a month.

Just don't wait until the final day to buy. The 2022 crowd learned that when TreasuryDirect buckled under demand on deadline day. Aim for around the 24th or 25th.

You can also cash out part of an electronic bond. TreasuryDirect lets you redeem any amount of $25 or more as long as at least $25 stays in the bond. If you only have room for a $10,000 purchase this year, redeem about that much and leave the rest earning.

Bottom Line

The 1.40% fixed rate is available on new purchases through April 30, 2027, and nobody knows what the May reset will bring. Here's what to do this week:

1. Log in to TreasuryDirect and check the issue date and fixed rate on every I bond you own. Anything bought from May 2020 to October 2022 is at 0.00%.
2. If you haven't bought I bonds this year, use your 2026 limit before December ends. Either redeem a 0% bond that's already past five years and rebuy in the same month, or put in spare cash you won't need for at least a year. Buy around the 24th.
3. If a 0% bond turns five between now and April, mark that month on your calendar. Redeem it then, penalty-free, and rebuy under your 2027 limit before April 30.
4. Before you redeem, add the interest to your expected 2026 or 2027 income and check it against any ACA subsidy or Medicare surcharge line you're close to.

The I bonds bought in the 2022 rush did their job. Inflation was brutal and they kept pace. Now a better version is on the shelf for six months, and for most 0% bonds it's worth the trade.