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Even as interest rates approach lows last seen in, oh, 50,000 BC, U.S. savings bonds are still a great deal.
I'm an obsessive fan of savings bonds, particularly Series I, or I-bonds, for short. Since I wrote about them last year, a few aspects of buying and giving them have changed, but the basic message hasn't: if you aren't buying savings bonds, you're missing out on a safe, simple, and relatively high-yielding investment available to anyone with a social security number.
Let's recap briefly what is so great about I-bonds:
- They pay an interest rate tied to the rate of inflation. You won't lose purchasing power, and if you're concerned about high inflation in the future, I-bonds will protect your savings. Most savings accounts, CDs, and other Treasury bonds pay less than the prevailing inflation rate. Right now, for example, I-bonds are paying 2.2% APY, which is more than almost any 5-year CD.
- Each person can buy up to $10,000 per year.
- You can set up an account in minutes and start buying I-bonds online at TreasuryDirect.gov.
- You can cash them in after one year or hold them for up to 30 years. (There's a small penalty for redeeming I-bonds before 5 years.)
- I-bonds are tax-deferred and can be used for a child's college education tax-free.
The way I always sum it up is: nobody regrets buying I-bonds.
The gift of aaaargh
The big change in bonds since last year: they got rid of paper savings bonds. If you're buying bonds for yourself, no big deal. Buying online is easy - all you miss out on is the cool pictures of Einstein and Chief Joseph and Helen Keller.
If you want to give a savings bond as a gift, however, the process is about to get a little awkward, because the recipient of the gift has to have their own Treasury Direct (TD) account. For example, say I want to give my niece a $25 I-bond. I can buy the bond right away and keep it in the "Gift Box" section of my TD account. To transfer it to my niece, however, I have to:
- Call or email my brother and tell him to open a TD account for himself, then a subaccount for his daughter (oh, and another subaccount for his son, if I want to give him a bond, too).
- Have him give me the kid's TD account number. Yes, it is safe to share your TD account number. No, this is not intuitive.
The Treasury has produced a YouTube video, complete with that reassuring "Welcome to your first day at work"-style voiceover, to explain how to give electronic savings bonds as gifts. Honestly, I would rather call my grandmother and ask her if she has any tech support questions for me.
Instead, I called James Kelly, director of the Treasury's Ready.Save.Grow campaign. His response, in short: Believe me, we know. "There are a lot of things we're looking at to simplify the process," said Kelly. "One of the things we keep in mind for simplicity is PayPal, or, for example, or iTunes. We want to get there eventually. It's going to take us time."
I asked Kelly whether anyone is using the gifting feature. "It's certainly not as robust as paper was, and we knew that that would happen," he replied.
This isn't good enough for Mel Lindauer, a Forbes columnist, coauthor of The Bogleheads' Guide to Investing, and a man even more into savings bonds than I am. "The answer is simple," said Lindauer by email. "Bring back paper I-Bonds and give investors an option. Prior to the elimination of paper I-Bonds, investors overwhelmingly chose paper I-Bonds over TD."
Stay safe out there
Lindauer ticked off a variety of objections to Treasury Direct, most damningly the fact that, unlike your bank's website, TD doesn't promise you're off the hook in the event someone fraudulently cleans out your account.
"There is an element of truth to that," said Kelly, but in over ten years and hundred of thousands of TD accounts, no customer has lost a dime to fraud. "We have had people who've had problems, but we have not held them accountable for it, because we haven't deemed them to be negligent with their access information." He mentioned the guy who put his Social Security number on the side of his truck. If someone did that with their TD password, "we probably would not have a whole lot of sympathy for them."
And a TD account is not like a checking account: it's designed to be easier to put money in than take it out. In order to steal my I-bonds, you'd not only need access to my password and my email account (TD sends a one-time passcode via email when you log in on a new computer), you'd then have to link my account to new bank account, which would leave an obvious trail.
In short, it would be even more work than convincing my brother to open a TD account for my niece. Please do not take this as a challenge.
To sum it up
- I-bonds are still an awesome, flexible, safe investment.
- The process for gifting them is too complicated, and no one blames you if you wait until they fix it.
- Buying them for yourself is a snap.
- I'm probably about to get a call from my grandmother asking if she can treat computer viruses with ibuprofen.
Matthew Amster-Burton is a personal finance columnist at Mint.com.
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