Ready for digital savings bonds?
The days of going to a bank and plunking down money for a paper Series I savings bond or EE bond are over. Beginning this month, these once-frumpy bonds are going high-tech. They'll mainly be sold in digital form at TreasuryDirect.gov, the government's website for buying and redeeming bonds.
Printing and mailing savings bonds is costly, says Joyce Harris, a spokeswoman for the U.S. Treasury Department's Bureau of the Public Debt. This move saves the government about $70 million over five years. Additionally, digital bonds may attract younger generations as buyers, she says.
Over the past few decades, savings bonds have declined in popularity. From 2001 to 2010, savings bonds sales declined 65%, Harris says. "Nowadays, lots of investments compete with bonds," she says. "And we want to hold on to our customers."
Yet savings bonds are worthy investments, says Tom Adams, author of "Savings Bond Advisor." The Series EE bond may only pay 0.6% interest (at the time of writing). But the Series I savings bond, which is tied to the Consumer Price Index, yielded a hefty 3.06% interest rate at the time of writing, giving you a fixed base rate and an inflation hedge.
Digitizing bonds makes sense, says Adams, who has a savings bond account at TreasuryDirect. They're not as easily stolen or mutilated as the paper versions. And buying savings bonds at the government site and redeeming them is easy, Adams says. Opening an account is quick, and purchases and withdrawals are made through your bank account. Bond denominations range from $25 to $5,000.
To make savings bonds investments in 2012, here's what you need to know.
- Banks will still redeem your bonds. Though banks will no longer sell savings bonds in 2012, they will still redeem them. And they'll also provide the signature guarantees that are required on TreasuryDirect forms to change the bond registration, such as when a beneficiary is added.
- Digital as well as paper Series I bonds are staying the same. They've traditionally been sold at face value. So you can buy a $100 I bond and redeem it for $100, plus interest that compounds semiannually.
- EE bonds are now structured differently. Before, paper EE savings bonds were sold at half their face value and redeemed at face value at maturity. As of Jan. 1, digital EE bonds are being sold at face value and redeemed at face value, plus interest.
With EE and I bonds, you'll be socked with a three-month interest penalty for redeeming either bond before the five-year mark.
Adams likes these new EE bonds. "The face-value confusion goes away," he says.
Investors who prefer paper, take heart. Paper savings bonds are still available. You can still get Series I bonds in paper form next year as a tax refund. When you're filling out Internal Revenue Service Form 8888, you merely indicate that you want your refund paid in bonds rather than a check or bank deposit.
As for digital conversion from paper, it's simple. TreasuryDirect lets you transfer your paper bonds to digital form via its SmartExchange program. You must first open a conversion-linked account within your regular TreasuryDirect online account. The converted bonds then appear in the account.
Paper Still Preferred
Savings bonds were popular for many years. They were launched in 1935 as part of the New Deal, designed to help small investors save more money and the government to fund debt. Along the way, the government enlisted Lucille Ball, Judy Garland and Mickey Rooney to pitch bonds. The entertainment industry promoted savings bonds in television shows like "Father Knows Best," "Superman" and "Lassie."
Today, savings bonds aren't promoted anymore. In addition, banks aren't interested in selling savings bonds because they compete with their own investment vehicles such as money market accounts and certificates of deposit, he says.
But most people still prefer paper savings bonds. "A lot of people find this changeover disheartening," Adams says.
Even so, paper savings bonds had their downsides. They can be lost, stolen or mutilated, says Harris. And sometimes people forget to cash them in. Currently, $16.2 billion in matured bonds haven't been redeemed, she says.
For their part, digital savings bonds are safe from theft. TreasuryDirect has never been hacked. "We have three layers of security," Harris says.
And with digital bonds, redemption isn't a worry. The bonds are redeemed automatically at TreasuryDirect when they mature. Your bond investments also are listed clearly in account summaries, though you don't get paper statements. You can even give digital savings bonds as printed-out gift certificates, but gift recipients must have a TreasuryDirect account.
Even though there are more competing investments than there were back in the 1970s, savings bonds are still viable savings tools, Harris says. "We're looking at more ways to educate Americans about them," she says.