Generous grandparents looking to give a financial gift to their grandchildren have been discovering since the beginning of this year that they can no longer buy U.S. Savings Bonds without some computer savvy and an Internet connection.
The U.S. Treasury stopped issuing paper bonds through payroll deduction in January 2011. Banks and federal credit unions followed suit Jan. 1 this year by shutting down their paper bond sales to make way for a complete switch to digital savings bonds that can only be bought and sold through the U.S. Treasury Department's website, www.treasurydirect.gov.
Treasury officials say the change to electronic bonds is expected to save the government more than $120 million during the next five years.
"Some folks may wonder why we got rid of paper bonds. It's part of an overall effort to go green and save money," said Jerry Kelly, national director for the U.S. Treasury Department's "Ready. Save. Grow. Campaign," based in Parkersburg, W.Va.
Savings bonds are guaranteed by the federal government and are considered among the safest investments in the world. In the 77 years since they were created in 1935, the bonds also have been popular gifts for special occasions like birthdays, weddings and graduations. The current rate on a 30-year Series EE bond is .60 percent.
The move to an electronic system does not seem to have hurt the public's appetite for buying bonds, Mr. Kelly said.
"We are selling about 300 percent more treasury bonds on TreasuryDirect than we did last year," Mr. Kelly said. "While there are a few more steps in the process for buying gift bonds through TreasuryDirect, it's not any more complicated than buying paper bonds."
The buyer in both scenarios would need to provide the full name and Social Security number of the recipient and an address to deliver the bonds to. In the paper world, the address would be a physical location.
In the electronic world, it is the recipient's TreasuryDirect account number. That means the recipient needs a TreasuryDirect account first. A minor child's account must be inside a TreasuryDirect account owned by a parent or guardian.
"The process can really be quite simple," Mr. Kelly said.
"It takes about 10 minutes to open a TreasuryDirect account and you can buy a gift bond right away after opening the account. You can deliver the bond to a recipient in just a few days, after standard money clearing processes."
When it comes to low risk investments that are fairly liquid, savings bonds are hard to beat. But in today's low interest rate environment, the returns they offer are not as competitive as they had been before the Federal Reserve began a policy in 2008 of systematically lowering the rate banks and government agencies pay investors to near zero percent.
"The 30-year bull market in bonds has come to an end once you come to a point where we are now at the bottom-end of interest rates," said Daniel Dingus, chief portfolio strategist at Fragasso Financial Advisors, Downtown. He said tax law changes also have made it more advantageous for grandparents to give gifts to grandchildren through 529 tuition plans.
"Low interest rates are good for borrowers when you can have a 30-year mortgage at 4 percent," Mr. Dingus said. "But it's not good for savers when a 10-year treasury note pays roughly 1.6 percent. If we get into a normal inflation range of 3.7 percent, you will lose a little over 2 percent a year in purchasing power.
"That can make a significant difference over time."
But for those who prefer to give savings bonds, another advantage of digital savings bonds is they can be purchased in any value starting at a minimum $25. Paper bonds were only available in specific denominations, but electronic bonds can for example be bought for $25.01 or $26.99.businessnews
Tim Grant: email@example.com or 412-263-1591. First Published June 22, 2012 12:00 AM