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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