Here’s where I bonds may work in your portfolio, according to financial advisors

I bonds are currently paying 9.62% annual interest through this October, presenting an opportunity for investors with a range of goals, according to financial experts.

These assets, backed by the federal government, are nearly risk-free and inflation-protected, with rates changing every six months based on the consumer price index from the U.S. Bureau of Labor Statistics. The latest rate hike was driven by March inflation data, showing 8.5% annual growth in prices. 

“As it stands right now, there’s really not a better deal out there,” said certified financial planner Byrke Sestok, co-owner of Rightirement Wealth Partners in Harrison, New York.

One of the downsides of I bonds, however, is the annual purchase limit, Sestok said. Individuals can buy $10,000 worth per calendar year and use their federal tax refund to buy an extra $5,000 in paper bonds. You can also buy another $10,000 through businesses, trusts or estates. 

“For my wealthy clients, this is a cooler place to park their cash reserves,” he said, explaining how higher earners may have cash handy for future opportunities. “For lower net worth clients, it’s an investment decision.”

For example, $10,000 of I bonds amounts to 10% of a $100,000 portfolio, whereas the same investment is only 1% of $1,000,000.

I bonds are like screwdrivers with a Phillips head on one side and a flat head on the other, Sestok said. “There’s a dual purpose, depending upon where you are in the net worth range.”

Still, I bonds may be beneficial for a range of investors, as long as you’re comfortable with the lack of liquidity, Sestok said.

For example, you can’t tap the money for at least one year, and if you sell I bonds within five years, you’ll lose the previous three months of interest earned directly before the sale.

John Scherer, a CFP and founder of Trinity Financial Planning in Madison, Wisconsin, says I bonds can serve multiple purposes, depending on an investor’s goals.

As a rule of thumb, he recommends keeping 10% of annual income in cash and another 20% for an emergency fund, with double those amounts for an entrepreneur or small business owner kept in a savings account or certificate of deposit.

You may consider purchasing I bonds on top of those cash reserves, with the option to deploy I bond funds into your investment portfolio after a year, Scherer suggested.

What’s more, an investor approaching retirement may consider using I bonds as part of their short-term bond fund allocation, he said.

“Buy some [I bonds] in the short run while they’re paying higher rates, and if it ever changes, you can always take them out,” Scherer said. “After the first year, you have complete flexibility.”

I bonds may also be a place to park cash you don’t need for at least a year, such as money for a wedding or buying a home, he said. Currently, you can score a better return than a savings account or a one-year certificate of deposit.