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.

The Power of an Idea

Savings bonds don’t move me. In fact, the following words come to mind: boring, slow and ancient. The same words can be used to describe a glacier and yet a glacier could also be touted as powerful, beautiful and massive. It is this other perspective, one filled with ideas, that separates my company from government information.

When I talk with people about their Series EE or Series I savings bonds we discuss data and ideas. The bits of data that comprise information are uninspiring unless one knows what to do with them. Anybody can recite data, given the proper source, but real value comes from linking data with ideas.

One of my clients has more than one million dollars in savings bonds. At a crucial time when rates were changing we had a conversation and I presented an idea. That idea resulted in $25,000 more in interest income a year for him over a ten-year period.  He is $250,000 richer. That was a powerful idea. I readily admit that not all my ideas have that kind of impact. However, my savings bond ideas have helped to shape the way bond owners think about managing their bonds and the way the government now helps bond owners.

If you need to talk about your savings bond investment, consider requesting a phone consultation. An affordable consultation might yield some ideas that change your perspective on the glacier.  Call 1-800-927-1901 to schedule an appointment.

U.S. Savings Bonds that are Earning Over 6%

Several of our clients have recently reported hearing “financial professionals” on national radio advocating cashing older Series I Savings Bonds. Before you follow that ill-fated advice, here is something you need to know. There are two groups of older savings bonds that are providing strong returns. If you bought I bonds from September 1998 through October 2001 you have some of the best bonds in the program. The fixed rates on these bonds range from 3% to 3.6%. This guarantees that you will always get that amount above inflation. When they enter their six-month earnings period between November 2009 and April 2010, these bonds will earn an annual rate of 6.06% to 6.36% (a combination of the fixed rate and inflation rate). Not too shabby when many money market funds are below 1%. I bonds purchased from November 2001 to October 2002 are also big winners. They will be earning an annual rate of 5.06% for their next six-month accrual period that follows November 2009. If you do not own these Series I Bonds and were hoping to get in on a good deal, it is to late.  Savings bonds are registered securities and do not trade on the secondary market. Savings bonds purchased since 1980 can be earning between 0% and 6.5%. If you are unsure about the interest rates that each of your bonds is earning, a Savings Bond Statement from the Savings Bond Informer provides the customized information you need. Never cash a savings bond without an understanding of the interest rates and timing issues that apply to it.

Small Potatoes are Better than No Potatoes

Have you noticed the interest rates banks are paying (or not) these days?  My friendly bankers are offering anywhere from .5% to .75% on CDs.  Money market funds and savings accounts are even more anemic at around .1%.  Pretty soon they will have to rename the latter the “non savings account.” If you have any money, banks want to use it for free.

This leads to the small world of savings bonds. I actually purchased the paper I Bond maximum, $5,000 per person per year, in December and will do so again in January. Here is why. The current I Bond pays 3.36% for the first six months and has to be held for one year. If cashed at the end of the year, three months interest is forfeited. Because the I Bond will receive 3.36% for the first six months, even if the rate is 0% for the second six months, the worst I can do is an annual return of 1.68%, guaranteed, tax deferred and exempt from state and local taxes. If inflation is somewhat normal (around 3%) for the second six months that my bonds are held I will net more than 2.52% after one year. This is not going to make me rich, but it feels better than loaning my bank money at a near zero percent return.

For more information about the I Bond please consult my annual newsletter. You can also read my comments in USA Today regarding purchasing I Bonds with your tax refund.

Newsletter Tackles Tough Savings Bond Issues

Immediate Release: December 2, 2009

Savings Bond Insight: The Next Chapter is now available.  This 12-page newsletter includes commentary on the recent zero percent rate on I bonds; the stock market and savings bonds; the best bonds that have been issued; and which bonds will no longer pay interest in 2010.  Packed with useful information.  $19.95.  To order call 1-800-927-1901 and mention this web site to save $4.95.

Detroit Free Press Asks Advice

Recently, Susan Tompor of the Detroit Free Press asked me about managing I Bonds. My advice, “Redeem Carefully!”


Redeem Carefully!

Each I Bond has its own set of data that determines its unique interest rate.  Many bond owners have mistakenly redeemed good performing bonds by not understanding the rates that apply to their bonds.   Never cash in a savings bond without first understanding the interest rate and increase dates for that particular bond.  Ignoring this data will likely result in a loss of money.  Read the whole story here.

If you’re wondering whether now is the time to redeem a bond, or which bonds are your worst performers, I would be happy to help you.