Sad Story Of Savings Bonds

Photo credit: TheKarenD (Flickr)

There was a time when millions of dollars of U.S. savings bonds were sold in June — for graduation gifts, for wedding gifts, and just because of the patriotic feelings on the Fourth of July. Those days are long gone. The Treasury has yet to post sales figures for 2012 or 2013, amidst speculation that savings bond sales slowed to a trickle as a result of changes made in recent years.

What happened to U.S. savings bonds? The government tinkered with the interest-rate formula, making them far less attractive as an investment by fixing rates for the life of the bond. Then in 2012, the government stopped issuing paper savings bonds, removing their appeal as a gift. And the Treasury stopped marketing savings bonds, maybe because the government was accumulating such huge debt by overspending that they didn’t want to call attention to its need to borrow money.

A Sad Demise

U.S. savings bonds have had a long and storied history, starting with series A-D bonds, offered during the depression to give people an incentive to save safely. The series E bond was launched on April 30, 1941 by President Roosevelt as a way of funding World War II. Those bonds, sold as a patriotic investment, had an initial 10-year maturity and were sold at a discount to face value (maturing to full value in 10 years). They carried an interest rate of 2.9 percent. During the war years between 1941 and 1945, more than $33 billion worth of series E bonds were sold to the public, in face amounts as low as $25.

It’s stunning to realize that if the government sold those same bonds under the same terms today, they would be a comparable investment. Today’s 10-year government Treasury bonds yield 2.53 percent.

When Series EE bonds were a Great Deal

Series EE bonds were introduced in the early 1980s — a time of soaring interest rates — to make purchasing more attractive. Those EE bonds had a fixed, lifetime base rate that was set every six months for all bonds sold during that period. And the bonds carried a “floating rate” portion of the interest, which changed every six months to keep up with the prevailing rate on Treasury notes.

On Nov 1, 1982, the first “floating” series of EE bonds was sold with a total rate of 11.09 percent, a yield that included a fixed base (floor) rate of 7.5 percent! Sales soared, peaking at nearly $12 billion in 1986, as people rushed to buy before the floor rate dropped to “only” 6 percent the following year! I well remember using my column and daily television show at that time to advise people to load up on series EE savings bonds before the floor rate was lowered. And some people, including myself, still have them! (They will reach “final maturity” soon — more on that below!)

In 1990, series EE bonds were such an integral part of our lives that a tax benefit was extended (and exists to this day) to parents who bought bonds in their own names and used the proceeds to pay for college tuition. Those who qualify based on income in the year the bonds are used (today, roughly $73,000 for single filers) can redeem the bonds tax-free if the money is used for certain college expenses. Series EE bond sales jumped to more than $17 billion in 1992, as the deal was first publicized.

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This post originally appeared on Western Journalism – Informing And Equipping Americans Who Love Freedom

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