Like inflation continues to rise and eating away at our budgets, there are good reasons to put your money in Series I Savings Bonds instead of a regular savings account. I bonds, which have been touted as an inflation-protected savings strategy, are expected to see interest rates rise to 9.6% next month, according to the Wall Street Journal and recent calculations by the consumer price index.

More savings accounts earn nearly 0% interest, which is easily surpassed by the current Inflation rate of 8.5%. As inflation rises, your dollar loses value, which means the money in your savings account doesn’t stretch that far. Federally guaranteed I bonds, which often have higher interest rates during times of high inflation, can be a way to protect your savings eaten away by inflation.

Are I bonds the right solution to grow your savings? Here’s what you need to know.

Here’s how inflation affects your savings

The current inflation rate of 8.5% is an average for all goods and services; some areas of spending may experience even greater price increases. Meat, poultry and fish, for example, are currently 13.7% more expensive than a year ago. For reference, inflation of 2% per year is considered healthy for the economy.

Meanwhile, the average interest rate for a savings account is 0.06%. While you normally lose a bit of value each year at the “normal” rate of inflation, the trade-off is that a savings account is low risk (compared to the stock market) and easily accessible (compared to a bond). or a CD). But with the exceptionally high rate of inflation right now, you might be better off diverting savings you won’t need to access immediately into a lower-risk vehicle with a better return.

This is where I bonds come in.

How Bond Interest Works

The interest rate of I bonds is a combination of two rates: a fixed rate and a derived inflation rate. The fixed rate is set by the US Treasury, which is the federal agency that issues the bonds. While the fixed rate dictated by the US Treasury may change every six months, I bonds maintain the fixed rate under which they were issued for their entire life (up to 30 years). Currently, the fixed rate for I bonds is 0%.

The derived inflation rate is also adjusted twice a year. This data comes from the Bureau of Labor Statistics, which releases monthly Consumer Price Index data. The US Treasury applies a formula to this data and the fixed rate to calculate the total interest rate on I bonds. I bond interest rates are updated on the first business days of May and November.

Currently, the blended interest rate on I Bonds is 7.12%, which is well above most savings account rates. And, with inflation hitting a new 40-year high last month, the I-bond inflation rate is expected to hit 9.6% when I-bond inflation rates are adjusted in May.

Are there any downsides to I bonds?

Yes. There are two major catches. First, you can only buy up to $10,000 in I Bonds. But, if you have you have not yet filed your income tax return, you can also choose to receive up to $5,000 of your refund as a deposit, bringing the total you can purchase to $15,000. This cap may limit the usefulness of I-bonds in preserving the value of your savings.

Second, your money will also be locked for a year, meaning you won’t be able to tap into those funds if needed until you reach the one-year cap. But there’s an incentive not to cash in on your I bond any longer: this savings strategy works best if you don’t cash in your I bond for five years. Withdrawing your money before five years comes with a penalty – you will lose the last three months of interest on the bond. You only receive the full interest rate if you hold the bond for at least 5 years.

Finally, although I bonds are considered safer investments because they are backed by the government, you should be aware that no investment is without risk.

If you wish to purchase an I bond, you can do so directly from the US Treasury website at TreasuryDirect.gov.