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.