New EE Bond Rates are Dismal, Older EE Bonds Much Better

On November 1, 2013 the government announced the new interest rate for EE Savings Bonds– .1%.  You read that correctly, not 1% but .1%. So if you invest $1,000 today, at the end of one year you will have earned… drum roll please…   $1.  But wait, if you cash after one year there is a three month interest penalty, so you will net a whopping 75 cents on that $1,000.  Who is going to buy this? Seems that the new rates help achieve an objective seemingly behind many of the savings bond decisions over the past decade–to reduce and potentially eliminate the program. 

If you own older bonds the picture is not so bleak.  Many are still earning 3-5%. Find out the specific rates on your bonds with a savings bond statement. There is a select group of bonds that will provide a double digit return this next year. These are outlined in a bond statement and also in the newsletter Savings Bond Insight: The Next Chapter.

More Savings Bond Help: 

Dan Pederson is author of Savings Bonds: When to Hold, When to Fold and publishes an annual newsletter Savings Bond Insight: The Next Chapter for $19.95. He provides savings bond consultations regarding retitling bonds, finding lost bonds and savings bond dilemmas. His company offers a free record keeping sheet by calling 1-800-927-1901 or visiting the web site.

New I Bond Rates Provide a First

For the first time in the history of the I Bond, the variable rate published November 1, 2013 equalled the rate published the previous six months–1.18%.  The fixed rate on new purchases was increased to .2% so the combination of the two rates provides an initial rate of 1.38% on I Bonds purchased from November 1, 2013 to April 30, 2014.

Older I Bonds will earn varying rates from 1.18% to 4.78% during their next six month accrual. A savings bond statement  will provide you with the exact detail for each bond you own.  It will also show the critical fixed rate that each of your I Bonds is assigned. Some older I Bonds have fixed rates at more than 3%.  How to order a Bond Statement.

Drug Thieves Must Have Been High to Steal Savings Bonds

A recent article from a newspaper in Ohio caught my attention as it linked two things that are not often combined—savings bonds and drugs. In addition to several thousand pills illegal for distribution, a would-be thief decided to try his hand at stealing savings bonds. Wow, this guy was in need of serious savings bond advice, and he isn’t the only one.

First, the story correction. Many media outlets reported he had stolen savings bonds worth $15,400. I’m not sure who came up with this. It was quick and easy to just count the face values of the bonds and, yes, it was dead wrong. Because the investment was comprised of EE Bonds, they could have been worth as little as $7,700 or as much as $50,000.

Next, the criminal correction. Dear Mr. Criminal, don’t steal savings bonds. It really isn’t worth your time. You see, they are registered securities. This means only the person(s) named on the bonds can cash them. So it may look appealing— all those $100 pieces of paper staring at you, but in the words of a popular drug campaign, “Just Say No.” It will save you a lot of hassle. Also, by stealing bonds with the owner’s name right on them you are handing the police a tracking device of where you have just been. Come on, think about it.

The morals of the story: Don’t Do Drugs, Don’t Steal Drugs, Don’t Steal Savings Bonds and if you own savings bonds Get a Bond Statement So You Know the Facts.

I Found These Bonds, Did I Hit the Lotto?

Periodically I get a call that goes something like this: “We moved into this new house and while renovating a room we found U. S. Savings Bonds. What should we do with them?” Or the caller might say, “We were buying used furniture and taped to the underside of one of the drawers was a stash of savings bonds. Are they worth anything?” In the most dubious of questions the finder asks: “I…er…found some savings bonds. How do I cash them?”

Not to be a killjoy, but there is disappointing news for most “finders” of savings bonds. If you are not named on the bonds, you are not the registered owner. If the registered owner(s) is deceased, but a relative of yours, the representative of the owner’s estate should apply to have the bonds reissued. If, however, the party listed on the bonds is not a deceased family member, you are out of luck. Savings Bonds are registered securities. The person named on the bonds as owner, co-owner or beneficiary is the person entitled to the bond. Contrary to popular opinion, finding savings bonds is not like finding cash.

“What should I do?” The government suggests you send the bonds to them. They will determine whether the bonds will be paid out. This raises a sticky question. Do government representatives really make any attempt to find the rightful owner? To this writer’s knowledge, no. Instead, they sit and wait and see if the owner ever shows up to claim the lost bonds. The finder may actually have a better shot at reaching the bond owner.

Is there a finder’s fee? No, but there is no law that I am aware of that prohibits the owner of the bonds from rewarding a finder.

Are the bonds always worth something? Not necessarily. The bonds may have been lost long ago and the rightful owner may have replaced them. If they were replaced, the bonds you found are worthless.

Banks Make Money on the Spread, Why Shouldn’t Savings Bond Owners?

You may have never thought of it this way, but your savings bond holdings have a spread of interest rates. Savings bond rates have ranged from a low of 0% to a high of more than 8% over the last 24 months.

Banks make money by borrowing at low rates such as .05% on our savings accounts, and lending at higher rates like 6% or more on a car loan. The difference is the spread between the cost of what they borrow and the income from what they lend. If I can borrow $10 million dollars at 1% and lend it at 6% I will make $500,000 a year in interest. All my lending, of course, would need to be without default, and that is another story, but the concept is making money on the spread.

Wise savings bond owners can do the same. Suppose you are going to cash $10,000 of savings bonds a year for the next three years while holding others. Wouldn’t it make sense to cash the worst performers and hold the best? How do you know which is which? An analysis of your savings bonds investment will determine the exact rate for each bond and how long that rate will last. While the government data is useful, it does not address some of the analytical questions necessary to maximize your overall return. A savings bond statement (see example) provides the detail needed to maximize your savings bond investment. Whether you like banks or not, this is one strategy that can be borrowed from the big guys and applied to the way you manage your savings bonds.

Savings Bond Program Charges Ahead, With or Without Customers

Regardless of your perspective on technology and the Internet you have to respect the sheer boldness of telling 88% of your customers the product they buy from you is no longer available. That takes, um … guts. Of course, if you still get a paycheck despite your decision, the risk is minimal. In fact, you might not care all that much what your long-term customers think.

On January 1, 2012, the government eliminated the option of buying paper savings bonds unless you use your tax refund—a temporary alternative.  Obtaining paper savings bonds for special occasions is no longer an option. Gone.

We won’t have the data to prove the wisdom or foolishness of this decision (see December 2011 blog) for at least a year or two so at present we are left to speculate. Is this part of a sinister master plot to simply do away with all savings bonds? Why does the government so often double-speak, telling Americans to save while they themselves spend, and then make it harder for Americans to save? Will they ever admit how much they gain by paying zero percent interest on paper bonds that have stopped earning interest? (My estimate is $680 million a year).

For now you have two options when considering a savings bond purchase. Sign up to buy bonds online by providing your bank account information to the government via their web site, or invest your money elsewhere.

If you own paper savings bonds make sure you have all the facts before deciding whether to hold or cash. Anyone who says it doesn’t matter when you cash a savings bond, doesn’t understand how savings bonds work.  Anyone who says it won’t matter which savings bonds you cash, doesn’t understand how savings bonds work.

Cashing the wrong bonds or cashing at the wrong time can cost you hundreds or even thousands of dollars.

This week a bond owner called me for a consultation about his portfolio. He wanted to redeem approximately $20,000 in savings bonds a year for the next five years. By evaluating his specific bonds, I explained a strategy that would net him $6,000 more over the next five years than if he had simply cashed his oldest bonds first.

The era of buying new paper savings bonds are gone, but before the chant “long live electronic” begins an important vote will take place. Americans will decide with their investing dollars if they will embrace the only option left to stay in the savings bond game.  Stay tuned…

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No More Paper Bonds. Why? Because They Said So!

It is official. As of January 1, 2012 the government will no longer issue paper savings bonds. In a bold stroke a mainstay of many Americans gift and savings plans will be  shelved. In their official press release the government said “Savings bonds are very much a part of this country’s history and culture, and will remain a part of America’s future – but in electronic form.”

The comments of an 82 year old bond owner I recently spoke with echo the sentiment of many. In 2012 she will be cashing bonds as they reach final maturity. “I would like to buy more bonds and put my grandchildren on as beneficiaries,” she said. I informed her that paper bonds would no longer be issued and we talked about the process for buying paperless bonds via the internet.  She was disappointed.  She  doesn’t use the internet and is unwilling to put her bank information into cyber space.

According to government statistics only 12% of savings bonds are purchased online. This means 88% of sales have been paper savings bonds. If you were running a business, would you run the risk of alienating 88% of your customers (in an election year no less) by shutting off access to your product and essentially eliminating a product line? The government claims it will save about $24 million a year by going to paperless bonds. However, the calculation presented to our elected officials to support this change has at least two flaws. First, it does not count the cost of lost sales. If the government sells $2 billion a year less of savings bonds and has to pay even one half of one percent more to borrow that money elsewhere, it will cost the government $10 million a year to borrow the additional money. That will erode the “savings.” Second, and this is the big one, the government is currently saving approximately $680 million a year by keeping $17 billion in paper savings bonds that have stopped earning interest. These are bonds that the government pays no interest on by simply waiting until the bond owner redeems them. This interest savings, at the expense of savings bond owners, easily pays for the savings bond program. Anyone, especially the government, can choose which data to use to support a position. In this case, the government is choosing to omit the full picture of the financial windfall they take in every year by using $17 billion in savings bonds interest free.

I am quite confident (note sarcasm) that you were contacted by the government to offer your input into their decision. They have given you choices, two in fact.  Purchase via the government prescribed method which involves giving your bank account information online or do not participate in the savings bond program.

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