Treasury trying to kill off program to buy EE and I Bonds

[Mulligan]

Interesting article in recent Forbes magazine the treasury is trying to kill off purchasing bonds. One comment they kept referring to was almost 90% of people bought them at banks instead of online. They suggested the TD was too cumbersome to use. I thought that was odd because I dont even online bank, yet I had no problem setting up the account and buying I Bonds. In fact I liked the security mechanisms in the system. Whether it makes it safer I have no idea, but it makes me think it does.

http://www.forbes.com/sites/thebogleheadsview/2011/08/05/treasury-killing-off-us-savings-bonds/

 

[ziggy29]

It's pretty telling when even tech-savvy people who usually embrace technological change hate these "electronic" bonds and the TD web site.

 

[thefinancebuff]

Treasury is in the business to raise money for the government at the lowest cost. Selling savings bonds retail costs too much. It basically pays off the middlemen (banks, print shops, post office, ...). Plus the interest rate is too high (0% fixed plus an early-out option versus negative on TIPS and no option). I think they made the right move.

 

[samclem]

The Treasury's timing is poor. The payroll deduction method of savings bond purchase, which was pushed by the government for decades, was discontinued a few years ago. Now this. At a time when Americans are looking for safe places to put their money, and when government (coincidentally) needs cheap sources of cash to support their borrowing, the savings bond program fills an important psychological and fiscal purpose. Whether purchased automatically or at a walk-up teller, there's something a lot of folks find very comforting about having a physical piece of paper that the government guarantees it will honor at a later date.
These small investors aren't rate sensitive, they'll likely hold onto these EE bonds for a long time, even though they pay rates that are lower than market rates. That spells a long-term cost savings to Uncle Sam. The government wants to increase employment--postal jobs, printing jobs, bank jobs--they are all jobs, and a lot more useful than some other uses of tax money.
Normally I'm all in favor of increased govt efficiency, but I think the phase-out of paper savings bonds is a loss of something worth keeping. At the very least they should improve Treasury Direct before doing this.

 

[ziggy29]

These small investors aren't rate sensitive, they'll likely hold onto these EE bonds for a long time, even though they pay rates that are lower than market rates. That spells a long-term cost savings to Uncle Sam. The government wants to increase employment--postal jobs, printing jobs, bank jobs--they are all jobs, and a lot more useful than some other uses of tax money.

And they can have my 3.4% fixed yield I-bonds when they pry them from my cold, dead fingers (or in 2030 when they stop paying interest)...

 

[Alan]

It's pretty telling when even tech-savvy people who usually embrace technological change hate these "electronic" bonds and the TD web site.

While the login process is much more protracted and cumbersome than any other site I access, once in, I find it very simple to buy and sell bonds.

I don't go into the site very often since the down-loadable Savings Bond Wizard does all the work in listing and tracking all our bonds.

 

[Nords]

Interesting article in recent Forbes magazine the treasury is trying to kill off purchasing bonds. One comment they kept referring to was almost 90% of people bought them at banks instead of online.
Whether it makes it safer I have no idea, but it makes me think it does.

The Treasury will replace paper I/EE bonds if lost or stolen. I don't know if Treasury still has the same policy on TD, but a few years ago Mel Lindauer pointed out that the Treasury does not make that guarantee for electronic bonds if TD is hacked or if an account is stolen.

 

[Mulligan]

And they can have my 3.4% fixed yield I-bonds when they pry them from my cold, dead fingers (or in 2030 when they stop paying interest)...

Ziggy, are you sure they won't throw you in jail for stealing? With your 3.4% fixed plus next six month 4.6% you are going to earn what 8% guaranteed? That's almost criminal isn't it!

 

[W2R]

Ziggy, are you sure they won't throw you in jail for stealing? With your 3.4% fixed plus next six month 4.6% you are going to earn what 8% guaranteed? That's almost criminal isn't it!

I'm so envious! Wish I had purchased some when Ziggy did.

 

[Nords]

And they can have my 3.4% fixed yield I-bonds when they pry them from my cold, dead fingers (or in 2030 when they stop paying interest)...

Ziggy, are you sure they won't throw you in jail for stealing? With your 3.4% fixed plus next six month 4.6% you are going to earn what 8% guaranteed? That's almost criminal isn't it!

I'm so envious! Wish I had purchased some when Ziggy did.

I remember when the Bogleheads were sure that Treasury had made some horrible mistake and was going to revise that rate at any minute. But IIRC I bonds weren't selling very well in 2000 and Treasury was trying to lure fish to their bait.

 

[chinaco]

And they can have my 3.4% fixed yield I-bonds when they pry them from my cold, dead fingers (or in 2030 when they stop paying interest)...

If you do not spend it... that is what usually happens!

 

[GrayHare]

Roughly 5% of fully matured savings bonds have not been redeemed. Some of course will eventually, but enough have been forgotten / lost / thrown away to pay most of the interest on all the others.

 

[REWahoo]

Roughly 5% of fully matured savings bonds have not been redeemed.

Yep, the dollar amount is staggering:

There are $16 billion worth of U.S. savings bonds that have already reached their maximum value but haven't been claimed.

Unclaimed Money

 

[Mulligan]

Maybe thats another reason why they are going paperless. A family member may stumble onto a certificate, but maybe not be able to find them in the cyber world. I just bought 10 k of the I Bonds recently and havent filled out the legacy info in case I die like I should. If I drop dead right after I post this, I bet there is a reasonable chance with me being single,these bonds help reduce the federal deficit down the road!

 

[l2ridehd]

There is a reason most bonds are sold through banks. Right or wrong, people trust banks more then the government. They somehow believe the bank is behind it because they sell it. As long as the government can sell large blocks of paper at low interest rates, they will never promote saving bonds and i bonds for individual consumption. When they can't they will start to go after this type sale again.

 

[Weather411]

Maybe thats another reason why they are going paperless. A family member may stumble onto a certificate, but maybe not be able to find them in the cyber world. I just bought 10 k of the I Bonds recently and havent filled out the legacy info in case I die like I should. If I drop dead right after I post this, I bet there is a reasonable chance with me being single,these bonds help reduce the federal deficit down the road!

 

[obgyn65]

Am I missing something ? I get about 3.3% average between my CDs and munis for the next 17 years, until I reach 62. I guess I need to learn more from you guys...

Ziggy, are you sure they won't throw you in jail for stealing? With your 3.4% fixed plus next six month 4.6% you are going to earn what 8% guaranteed? That's almost criminal isn't it!

 

[Alan]

...

Ziggy, are you sure they won't throw you in jail for stealing? With your 3.4% fixed plus next six month 4.6% you are going to earn what 8% guaranteed? That's almost criminal isn't it!

Am I missing something ? I get about 3.3% average between my CDs and munis for the next 17 years, until I reach 62. I guess I need to learn more from you guys...

Ziggy bought I-Bonds ~10 years ago when the fixed rate was 3.4%. Look for the many threads on I-Bonds for info on them.

 

[ziggy29]

Ziggy bought I-Bonds ~10 years ago when the fixed rate was 3.4%. Look for the many threads on I-Bonds for info on them.

Yep, in 2000. My only regret is being a lot more cash-strapped back then or else I would have loaded up the truck. I could only afford about $4500 in face value at a time when the limit was much higher. But yeah, I suspect these will be the very last things I would sell (before final maturity) if I ever needed to raise cash.

 

[clifp]

The reason I bought so few back then was you were limited to purchasing $500 Ibonds.
For each transaction you had to re-enter all of your information. The good news was the Treasury was accepting credit cards back than and I so I got a 1% cash back on my Discover card. But after doing this a dozen times (I ended up with 10K 3.3-3.6% ibonds. I figured why not forget this penny ante stuff and buy TIPs which I did in 2000/2001. At the time it did not seem all that important that TIPs were 10 year maturity vs 30 years for the iBonds. I just knew that both were close to the 4% inflation protected rate of return I wanted.

 

[Alan]

The reason I bought so few back then was you were limited to purchasing $500 Ibonds.
For each transaction you had to re-enter all of your information. The good news was the Treasury was accepting credit cards back than and I so I got a 1% cash back on my Discover card. But after doing this a dozen times (I ended up with 10K 3.3-3.6% ibonds. I figured why not forget this penny ante stuff and buy TIPs which I did in 2000/2001. At the time it did not seem all that important that TIPs were 10 year maturity vs 30 years for the iBonds. I just knew that both were close to the 4% inflation protected rate of return I wanted.

10 year maturity
"Whoosh!! What was that?, that was your life mate". - Basil Fawlty

Amazing how time flies. I didn't start to buy I-Bonds until 2003 when it was much easier to do so on-line. I wish I'd had the patience to buy some paper bonds earlier.

 

[Nords]

Am I missing something ? I get about 3.3% average between my CDs and munis for the next 17 years, until I reach 62. I guess I need to learn more from you guys...

You're doing about what today's I bonds would pay, and unfortunately the Treasury has clamped way down on how much you can buy per year.

 

[Koolau]

Treasury is in the business to raise money for the government at the lowest cost. Selling savings bonds retail costs too much. It basically pays off the middlemen (banks, print shops, post office, ...). Plus the interest rate is too high (0% fixed plus an early-out option versus negative on TIPS and no option). I think they made the right move.

I have no way to verify this, but the bank where I bought my I=bonds this summer claimed that they sold them as a service to their customers. They claimed that they did NOT make any money from the gummint. Since this would be relatively easy to verify or refute (note that I have done neither, heh, heh) I would not think a bank manager would lie to me about it. But, I don't know, so YMMV. I would agree that selling via the net has to be cheaper, but if it means you sell a lot less, I don't understand why they are trying to kill paper bonds. Think about merchants demanding cash instead of plastic. Yes, on the sales they make, they make more money than when people use plastic. But, as everyone now expects to be able to charge, the merchants sales would drop. Just sayin....

 

[MooreBonds]

I remember when the Bogleheads were sure that Treasury had made some horrible mistake and was going to revise that rate at any minute. But IIRC I bonds weren't selling very well in 2000 and Treasury was trying to lure fish to their bait.

I don't understand why they thought the Treasury made some form of mistake....back when I-bonds first appeared on the scene, it wasn't long after the TIPs were created (1999/2000). It is true that TIPs/I-Bonds weren't immediately gobbled up, as they were a new product in the entire fixed income arena (hardly any private US inflation-linked products were offered ever before).

Given the interest rates at the time, the market rates for 10 year TIPs (one of which I purchased) were roughly 3.6%-4.25% fixed + CPI (roughly 2%-2.5% at the time), yielding a composite rate of roughly 6%-6.5%...which is about what the traditional fixed 10-year notes were yielding. Which makes sense because current fixed rates are a composite of the market's future inflation expectations plus a fixed rate.

In order to have any success at auction, the Treasury would be forced to offer a market composite rate on I-bonds and TIPs, or else no one would buy them and would just buy the fixed traditional EE bonds/T-notes.

 

[Koolau]

In order to have any success at auction, the Treasury would be forced to offer a market composite rate on I-bonds and TIPs, or else no one would buy them and would just buy the fixed traditional EE bonds/T-notes.

Very good point. THanks, MooreBonds. This must be at least 90% of the explanation for why the Feds are killing I-bonds. They probably will not kill TIPS for a while longer. After all, they get to tax the crap out of your earnings without actually paying you anything (until cashed in). Win-win for now for the Feds. Of course, YMMV.