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Makin' Money

A sad personal finance end to 2011

Chris Farrell Dec 27, 2011

The U.S. Treasury unveiled today its online 76-year timeline for U.S. savings bonds. It’s a fun look at an historic program. U.S. savings bonds rank among the great brand names in American finance.

The timing is disgraceful, however. Sad to say, Treasury is shrinking the savings bond program. It slashed the annual amount an individual could buy from a maximum of $120,000 in 2007 to $20,000 in 2008. After Dec. 31, 2011, you’ll no longer be able to go to a bank or credit union to buy paper savings bonds. You’ll only be able to buy savings bonds electronically, with an annual maximum of $10,000. (You can use your tax refund to buy another $5,000, for a total of $15,000 a year.)

Some celebration: From $120,000 to $10,000 in 4 years. At this rate, the timeline will soon have a different end point: RIP.

A column I did for Kiplinger’s, Save the Savings Bond, argued Treasury is doing wrong by savers.

The trend is deeply disturbing, considering how hard many Americans are trying to save despite high unemployment, declining incomes and fractional yields. It’s a classic case of penny wise and dollar foolish. “It’s outrageous,” booms Zvi Bodie, finance professor at Boston University. (Anyone who’s talked with Professor Bodie knows he’s a wonderful raconteur and, yes, he booms when he feels strongly about something.)

Bodie has been on a campaign to stop Treasury from reducing the annual limits.

So far, Treasury is deaf. It says the move to online-only sales will save taxpayers a significant amount of money. My question is why not help out savers by building and expanding on the famous brand name?

I like savings bonds because there’s no credit risk. Your money compounds tax-deferred until they’re cashed in. There are no commission costs to buy and sell savings bonds. You don’t pay state and local government taxes when you redeem the bonds. The I-savings-bond is specifically designed to be a hedge against inflation, the scourge of long-term savers.

In other words, it’s a terrific product designed to benefit for savers rather than line the pockets of financial institutions.

It’s hard to save. It would be a help if people could walk into a bank, credit union, brokerage firm and any other kind of financial institution and buy savings bonds. Better yet, how about making it possible to buy savings bonds when ordering a coffee and bagel in the morning, and at the drive-through with your hamburger and fries in the evening? Imagine if the retail clerk asked if you wanted a savings bond added to the bill?

C’mon, Treasury, it’s time to reverse course.

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