By: Steve Dinnen
I really like US Savings Bonds. They’re a great way for folks to stash away some money; the interest paid on them is ironclad, and they generally beat CDs in rate of return. Just as important, though Savings Bonds are great to buy and hold, they have plenty of liquidity in case you need cash in a hurry. Once you own them for twelve months, you can cash them in at any time. You’ll take a three-month interest hit in the first five years, but that’s likely a lighter penalty than you’d pay for cashing in a CD before it matures.
Big changes have come to bonds in recent months. As of January 1, 2012, EE and I Bond purchases have gone electronic. There also is a new pricing mechanism. Whereas paper bonds had to be purchased in set denominations – $ 25, $ 50, $ 100, etc. – you can now buy any denomination your heart desires, for example, fancy $ 1776, or $ 1492 bonds for you history buffs. Go get ‘em!
You even get to legally beat your state government out of any income taxes, as US Bonds are liable only for federal taxes. And, when you use them for qualifying education expenses, they’re free of federal taxes as well! A few words of caution, however – there is a downside. Purchases of for either I or EE bonds are now pretty much limited to $10,000 per year per Social Security number.
Tom Adams, a longtime savings bond expert who wrote the Savings Bond Advisor and hosts “Savings Bond Advisor” at www.savings-bond-advisor.com, says that lots of people would buy the maximum of $ 30,000 annually when that was the limit.
“What’s the point of a limit?” asks Adams. “It’s not like the US Treasury doesn’t need the money!”
That’s the rule of the road, however, as is the electronic-only sales method. You no longer can waltz into your financial institution and buy a couple of bonds to tuck into the grandkids’ Christmas stockings. The Bureau of Public Debt says that over-the-counter sales have been halted as a “continuation of Treasury’s all electronic initiative.” Whatever!
The way to buy bonds now is via TreasuryDirect at www.treasurydirect.gov.. You enroll at this site and then wire your money from your financial institution. They’ll then credit you with a bond.
Since TreasuryDirect entails tapping into Uncle Sam’s vaults, there are passwords and protections galore. I fully understand all of the security, but I found the multiple passwords and unclear directions to be so cumbersome that I retreated from my attempt to buy an E-bond one recent evening and instead headed off to the fridge for a beer. I haven’t been back since (to TreasuryDirect, not the fridge), but I suppose I’ll eventually mosey back for a re-try. Maybe I’ll get one of my children to help.
Or perhaps I’ll do what Tom Adams says he’s seeing: purposeful overpayment of withholding or estimated quarterly income taxes so that you end up at tax time with a refund. Instead of a refund check, you can get up to $ 5,000 in I Series bonds – the paper version! That paper I Bond purchase is a once-a-year event courtesy of the tax refund.
Given the current confusion about other investments, perhaps you should consider US Government Bonds as another option – they work for me and maybe you’ll love ‘em too!