The conspiracy to kill the U.S. savings bond
There's been a lot of talk about the good deal that April 2008 issue I Bonds represented, but today the U.S. Treasury has outdone themselves and announced a 0% fixed portion for May 2008 issue I Bonds. Based on the prior low of a 1% fixed rate portion in November 2005, I figured that we would see a sub 1% fixed portion this month, but ¡holy frijoles! a 0% fixed portion seemed unthinkable.
I'm not exactly sure what the Treasury wants us to read into this. On one hand, I suppose it could be argued that the Treasury is expecting an extended period of high inflation, and decided to cut the fixed rate portion to cover their hinies.
However, I believe that this is yet another step toward the eventual elimination of the savings bond program, where savings bonds have been sold continuously since 1935. To begin, I would like to reference a January 2003 San Francisco Chronicle article by Kathleen Pender, Screws tightened on savings bonds:
A little evasive there, Representative Istook?
From my perspective, here's the sequence of events that have documented the death of the savings bond to date:
Sadly, we can only speculate about the next step that the venerable U.S. savings bond will take as the U.S. Treasury gradually lays it to rest. Stay tuned...
I'm not exactly sure what the Treasury wants us to read into this. On one hand, I suppose it could be argued that the Treasury is expecting an extended period of high inflation, and decided to cut the fixed rate portion to cover their hinies.
However, I believe that this is yet another step toward the eventual elimination of the savings bond program, where savings bonds have been sold continuously since 1935. To begin, I would like to reference a January 2003 San Francisco Chronicle article by Kathleen Pender, Screws tightened on savings bonds:
"I don't think you should be using taxpayers' money to advertise, promote and market something that is the most expensive way for the Treasury Department to borrow," says Rep. Ernest Istook Jr., chairman of the House Appropriations Subcommittee for Treasury, Postal Service and General Government.
Istook, R-Okla., who authored the bill, won't say whether he wants the savings bond program shut down entirely. "That is not a yes or no question," he says.
A little evasive there, Representative Istook?
From my perspective, here's the sequence of events that have documented the death of the savings bond to date:
- 1/15/2003: Minimum Holding Period For Savings Bonds Extended To 12 Months
- 12/30/2003: Online savings bond purchase via credit card discontinued
- 4/4/2005: Series EE Savings Bonds To Earn Fixed Rates Beginning With May 2005 Issues
- 12/3/2007: Annual Purchase Limit For Savings Bonds Set at $5,000
- 3/21/2008: New $100 Minimums for Treasury Marketable Securities to Debut in April
- 5/1/2008: May 2008 issue Series I Savings Bonds have a 0% fixed rate portion
- 1/1/2012: Treasury to End Over-the-Counter Sales of Paper U.S. Savings Bonds
Sadly, we can only speculate about the next step that the venerable U.S. savings bond will take as the U.S. Treasury gradually lays it to rest. Stay tuned...
posted by Frugal Frugalson at
10:10 AM
3 Comments:
I think you're right about the savings bond program being in danger of being shut down completely. And I don't understand it. Given what the national debt is, you'd think they'd want people to invest in the government. If the savings bond program is the most expensive way that the U.S. government borrows money, then the program must be seriously mismanaged. They should fix the management problem, not eliminate the program or make it unappealing to investors.
By
Nine Circles, at 5/1/08, 12:35 PM
Hi I have used your site for awhile to know what the pending rates were going to be....so after reading your post today I went to the TD site and cancelled my pending purchases. I was all set this year to to 5000 electronically and 5000 paper....now it looks like I will put the 7000 I have left to invest this year in Treasuries somewhere else. Thanks for the prompt post on the info I appreciate it!!!!!
Bill
By
Bill thon, at 5/1/08, 5:10 PM
The Treasury seems to be steering the individual investor toward purchasing electronic bills, bonds, notes, and TIPS, which are apparently much more cost-effective for them to administer.
Unfortunately, last month may have been the best opportunity for us to purchase I Bonds for the foreseeable future, if not forever.
By
Frugal Frugalson, at 5/1/08, 8:40 PM
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