The rate on U.S. Series I savings bonds is now 7.12%, about twice the previous rate. This investment, which many clients might not think about except as gifts for kids, comes with many tax considerations—and advantages. They still may not be for all investors.

“Maybe not so surprising, taking into consideration the latest inflation news,” Dan Gibson, a tax partner in EisnerAmper’s Private Business Services Group in Iselin, N.J., said of the solid rates on U.S. savings bonds.

Clients are not generally aware of the improved return, which is indexed to inflation every six months. Of the $21.6 trillion invested in U.S. government bonds, only $46.3 billion is in the form of Series I bonds, Gibson said.

“I’ve been having many conversations with clients about Series I bonds,” said Lawrence Pon, a CPA and financial planner in Redwood City, Calif. “I started to get excited about them this year when the rate was 3.56% starting in May. Previously the interest rate was zero or really low for the past 10 years. I hadn’t mentioned them until now.”

Investments in Series I Bonds are limited to $10,000 per Social Security number per year, an amount some said severely limited these bonds’ potential impact on most portfolios. The minimum purchase is $25, and you must hold the bonds for at least one year, among other conditions.

An additional $5,000 investment can be made on Series I bonds using a federal tax refund. If not anticipating a refund, “do some tax planning and project how much may be due,” Pon said. “Pay that amount plus $5,000 by Jan. 18, 2022, via an estimated payment.”

“It is a risk-free investment and state income tax-free,” Pon added. “The interest isn’t taxable until the bond is redeemed, [though] to collect the entire amount of interest the bond does need to be held for at least five years. The interest may be tax-free if used for higher education—but watch the details.”

Robert Conzo, CFP, CEO and managing director of The Wealth Alliance in Melville, N.Y., said that tax may be waived if the bond is cashed in the same year as used for education and if the tax-filing status is not married filing separately. The modified AGI must also be less than the cutoff set by the IRS, among other conditions.

Savings bond security comes at a cost. These bonds “offer a government guarantee that promises recovery of original capital plus any increases in the cost of living,” Conzo said, but “they’re not as liquid as Treasury bills or bank accounts. For the first year of owning the Series I Bond, you cannot get your money back.”

“The Series I probably doesn’t get much publicity because there’s very little incentive to sell from the brokerage/investment firms since you can only obtain directly from the Treasury,” Gibson said.

“As inflation falls, the coupon rate will fall in tandem,” said Brian Price, investment analyst at Octavia Wealth Advisors in Cincinnati, adding that holding these bonds five years to avoid a three-months’ interest penalty “subjects the investor to at least 10 adjustments to their coupon rate before they can exit the investment without penalty, taking away control to move money as opportunities change.”

Price said his firm doesn’t see these bonds as a sustainable, long-term investment. “While inflation may remain above the Fed’s 2% target throughout the coming years, it will fall from its current levels, and once it does the yields on these bonds will fall substantially,” he said.

Series I bonds can be a good way of hedging your emergency reserve against inflation, but “there is always the consideration that your funds are locked up for a year, minimum,” Conzo said. “For those starting an emergency fund, these instruments may not be a suitable investment due to the illiquidity. For those who have an established emergency fund and have the liquidity to purchase these bonds, the improved interest rate, compared with lower-yielding bonds, may be attractive.”

All in all, Series I bonds are “not a bad place to park some money,” Pon added.