Savings Bonds RIP

by James & Miel on September 13, 2011 · 2 comments

(Guest post from James, original founder of DINKS Finance :))

As many of you long time readers of personal finance blogs will know, the U.S. Treasury department recently issued a press release saying they were eliminating paper sales of savings bonds, effective January 1st, 2012.

This move comes as little surprise as some personal finance pundits noted it could be happening as early as 2008.  It is still possible to purchase bonds electronically, but as of the end of the year, you won’t be able to get paper versions any more.   This move is just the latest in a series of rulings by the Treasury department liming public sales of this investment.

In terms of what it means for your personal finances, the answer is probably very little.  The Treasury department has already limited the amount of bonds one can purchase, so the tax-deferred benefits of owning large amounts of these kinds of securities is already limited.   Savings bonds also don’t pay the best rates.  For example, while Series I bonds currently pay 2.6%, it is possible to get a better deal with 30 year treasury notes at 3.7%.

Since savings bonds have widespread ownership among the American population, one has to wonder why the Treasury is doing away with the program.   Part of the reason may be that annual bond sales are somewhere in the range of 200 million USD.  Given the huge financing needs of the Federal government, it’s likely that selling savings bonds is just no longer an important source of government funding.  It’s also the case that Washington is under huge pressure to cut back on spending, and it is possible that there isn’t a strong savings bond constituency to defend the cost of printing and mailing the paper securities.

So, the bottom line is that savings bonds are a dying investment class, however it may not matter for your pocketbook.

Happy  Investing.

James



{ 2 comments… read them below or add one }

1 Investor Junkie September 13, 2011 at 8:03 am

“For example, while Series I bonds currently pay 2.6%, it is possible to get a better deal with 30 year treasury notes at 3.7%.”

You are comparing apples to oranges. The major issue with this statement:

I-bonds are indexed to inflation (CPI), 30 year treasury note is not. I Bonds are more like TIPS, except TIPS are not very tax efficient, where I bonds are. Right now the government couldn’t pay me to own a 30 year treasury at 3.7%. With at least a I Bond you have inflation protection (at least assuming the government generated CPI is accurate).

With our deficits one would think they would push for more US citizens to invest in government bonds. This does the reverse effect. Stupid government bureaucrats.

2 James September 13, 2011 at 11:28 am

Why wouldn’t the government generated CPI be accurate?

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