Experts weigh in on Series I bond rate resets, taxation, and inherited assets.

As investors flee rising prices and market uncertainty, demand for Series I bonds has soared.

Demand for inflation-protected and almost risk-free Series I bonds has gone through the roof as investors try to get away from rising prices and volatile stock markets.

According to the U.S. Department of Labor, annual inflation rose by 8.6% in May, which was the highest rate in more than 40 years. However, I bonds are currently paying a 9.62 percent annual rate through October.

This is especially appealing because the S&P 500 has had a rough six months. Since January, it has dropped by more than 20%, making it the worst six-month start to a year since 1970.

In fact, since the annual interest rate on I bonds went up to 7.12 percent in November, 1.85 million new savings bond accounts have been opened as of June 24.

Byrke Sestok, co-owner of Rightirement Wealth Partners in Harrison, New York, and a certified financial planner, said that I bonds are a great way to save money and make investments.

I bonds won't lose value because they are backed by the U.S. government. And if you don't need to touch the money for a year, he said, the current rate "dwarfs" other ways to save cash.

Still, there are some things to think about before investing a lot of money in these assets. Here are the answers to some of the more difficult questions about I bond.

1. How do interest rates work for I bonds?

I bonds have a fixed rate and a variable rate that depends on the consumer price index and changes every six months. Every year, on the first business day of May and November, the U.S. Department of the Treasury says that there will be new rates.

Since inflation has been going up over the past year, the variable rates have gone up. In November, the annual rate was 7.12 percent, and in May, it was 9.62 percent. But the first six-month rate window depends on when you bought the bond.

For instance, if you bought I bonds on July 1, you will get the annual rate of 9.62 percent until December 31, 2022. After that, you'll start getting paid the annual rate that was told to you in November.

2. How do I pay taxes on the interest from my I bonds?

Even though state and local taxes don't apply to I bond interest, you still have to pay federal taxes.

There are two ways to pay the bill: either report the interest on your tax return every year or wait until you cash in the I bond.

Most people wait, but Tommy Lucas, a CFP and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, said that the choice depends on several things.

For example, if you choose to pay taxes on your I bond interest every year before getting the money, you'll need another source of income to cover those levies.

But if you've set aside those funds to pay for education costs, the interest is tax-free, so it doesn't make sense to pay levies every year, he said.

"All of these choices come back to what this investment is for in the end," Lucas said.

3. If I die, what will happen to my I bonds?

When you open a TreasuryDirect account to buy I bonds, you need to add a "beneficiary designation" that says who will get the money if you die.

Without this designation, it will be harder for family members to get the I bonds, and depending on the amount of the I bonds, they may have to spend time and money going through probate court.

"Personally, I make sure that my clients do it right the first time," he said, explaining that adding beneficiaries at the start may save trouble down the road.

But if you set up an account without a beneficiary, you can add one online by following the steps at TreasuryDirect. You can call support with questions, but the website says that they are getting "more calls than usual" right now.

Treasury Direct says that I bond heirs can keep the asset, cash it in, or have it reissued in their name if a beneficiary is named.

The interest that has built up up to the date of death can be added to the final tax return of the original owner or the return of the heir. Lucas said that the person who will get the money can decide whether to keep deferring interest or not.