Will They Discontinue/Modify EE Bonds

[moda0306]

Right now EE bonds double in value in 20 years.  This is an implied, tax-deferred return of 3.53%.  For reference, the rate on the 20-year is probably about 2.6% on the open of today's bond market.

They didn't remove these bonds in 2008 when 30-year rates hit mid-2%, so they probably won't now, but they've modified the EE bonds a lot in the past.  It might be worth trying to nab these now while their still around, or at least while they're still offering a 1.1% rate fixed return when they're in "cash mode."

[WildAboutHarry]

I suspect that the Treasury will do away with EE and I bonds at some point.  The progressively lower annual limits, the demise of paper bonds (except for income tax refunds), etc. are all bad Savings Bond omens.

[moda0306]

WAH,

A part of me just died inside.  Get out of here with that pessimism.

[WildAboutHarry]

I share your "WAH"   Savings bonds and CDs are among the few things where retail investors have an advantage over the big guys. 

I have some 2% and 3% real I-bonds, and I winced this morning when I bought the electronic limit at 0% real.  Imagine a $1,000 annual limit.  Or $500. 

[moda0306]

My use of the term "WAH" was as an acronym of your name.

But now I'm picturing Snookie's trademark whine-call from Jersey Shore, and, oddly, the sound fits perfectly with my emotions on this issue.

Rest assured though, in a deleveraging in the US that is happening at the same time as resource depletion and growing emerging markets, few forms of wealth are going to deliver a really solid "real" return, when "real" is determined by CPI.

[WildAboutHarry]

I obviously missed the significance of WAH.  But it does serve both purposes

Relative to just about everything else, 0% real (even if it is CPI-style real) sounds pretty good.

[moda0306]

I do get the "keep up with the Joneses" itch, only it applies to my portfolio, not my car and plasma TV.

I'm ok making 0% real return, as long as I'm beating my friends/neighbors!

JK... kinda.

[akratic]

They already effectively killed EE bonds for 1 January 2012, didn't they?

1) only the paper EE bonds double after 20 years, the electronic ones do not. Source.

2) starting 1 January 2012 you can only buy the electronic version. Source.

So starting in 2012 we can still get $5k worth of 1.1% electronic EE bonds (or whatever the rate is), but no more 3.5% guaranteed after 20 years.

And no more putting $10k/yr into I bonds and $10k/yr into EE bonds, either.  $5k/yr max per SSN per product.

Although compared to the other cash options, even 1.1% is not bad right now.

[moda0306]

akratic,

Amazing catch.  I did not notice that.

[Lone Wolf]

Thanks for the heads up, akratic!  Bummer.  I guess they're trying to sort of let these things deteriorate until fewer and fewer people use them.

[KevinW]

In their defense, I get the feeling that most people consider savings bonds an anachronistic relic.  I don't think it's a very popular program outside these walls.

[Lone Wolf]

In their defense, I get the feeling that most people consider savings bonds an anachronistic relic.  I don't think it's a very popular program outside these walls.

True.  Given current policies, I sort of get the feeling that the government considers saving itself to be an anachronistic relic.

[MediumTex]

In their defense, I get the feeling that most people consider savings bonds an anachronistic relic.  I don't think it's a very popular program outside these walls.

True.  Given current policies, I sort of get the feeling that the government considers saving itself to be an anachronistic relic.

It's ironic that this anachronistic relic is paying more than virtually any other kind of deposit account with no interest rate risk, and doing it with complete tax deferral of all gains until redemption.

Maybe granny has been more sophisticated than we thought all along.

[smurff]

They already effectively killed EE bonds for 1 January 2012, didn't they?

1) only the paper EE bonds double after 20 years, the electronic ones do not. Source.

Akratic, this is the scary part about what the Treasury does:

(from the page you sourced)

On paper savings bonds issued or replaced on or after August 1, 2006, the first five digits of your Social Security number will be masked and replaced with asterisks. This is being done to protect your privacy and to prevent the information from being used for identity theft.

Doesn't the Treasury Dept. know that it's the LAST four digits of the nine-digit Social Security number are the digits that banks and other institutions subject to financial privacy laws ask for as a verification key?  The first five are related to the state where the card was initially issued and the date of birth.

Not that those first five can't be used for some forms of ID theft, but it's a lot easier for someone to thieve (Yeah, that's me using it as a verb) using the last four.  If there's a drug-addicted family member or a thieving relative who has access to the household and happens to find the last four lying around, they can (in theory) do some real financial damage with that info.

I don't think the Treasury knows what they're doing.  I don't think they can conceive of the future past the ends of their noses.  And I'm starting to think they're not smart enough (read:  clueless, stupid) to wind down the program gradually to get rid of it, if that's what the Treas. Dept. itself intends.  If anything, they might get rid of the savings bonds program unintentionally, via bankers who want all the money people want to save diverted to their institutions and then their pockets--without regard to patriotism or the relatively low cost gov. borrowing that savings bonds provide.

[smurff]

It's ironic that this anachronistic relic is paying more than virtually any other kind of deposit account with no interest rate risk, and doing it with complete tax deferral of all gains until redemption.

Maybe granny has been more sophisticated than we thought all along.

That's often the case.  Eons ago, a Granny came up with the idea of "pin money" or "back money."  That way, if Grandpa was gambling away the weekly pay, the family could have something left to buy food and pay rent.  And if Grandpa was not, then one they they could save enough to buy a house.

[ZedThou]

1) only the paper EE bonds double after 20 years, the electronic ones do not. Source.

I believe the information on that page is incomplete with respect to the EE electronic bond's interest earnings after 20 years. See http://www.treasurydirect.gov/indiv/res ... dterms.htm

Interest Earning Life

At a minimum, the U.S. Treasury guarantees that an EE Bond's value will double after 20 years, its original maturity, and it will continue to earn the fixed rate unless a new rate or rate structure is announced. If a bond does not double in value as the result of applying the fixed rate for 20 years, the U.S. Treasury will make a one-time adjustment at original maturity to make up the difference. Series EE bonds earn interest for 30 years.

[WildAboutHarry]

I believe the information on that page is incomplete with respect to the EE electronic bond's interest earnings after 20 years.

That seems to be the norm for the Treasury Direct site.  It is chock full of information but organized in a way that makes it very difficult to extract anything useful or consistent in a reasonable length of time.

I'm not a big fan of the secret decoder card aspect to accessing TD accounts, either.

EE Savings Bonds had a great "rebirth" in the early 1980s.  In Milton and Rose Friedman's Free to Choose (circa 1980) they lambaste Savings Bonds as a great ripoff.  When EE Bonds changed to yield 85 and then 90% of the 5-year Treasury rate that was a great deal (with tax deferral, etc.).  Now, not so much.

You can read about the history of the savings bond program on Treasury Direct -- if you can find it.

[AdamA]

I'm not a big fan of the secret decoder card aspect to accessing TD.

That decoder card alone is reason enough to pay the expense fee of a treasury only mmf.

[moda0306]

Fellas... it's just something you keep in your wallet.

I didn't mind it.

[WildAboutHarry]

Fellas... it's just something you keep in your wallet.

Right, but then you need to remember the TD-assigned account number, punch in the password on the secret keyboard, then enter the decoder card serial number, punch in the "code group prefix*" from the secret decoder card on the secret keyboard, ad nauseum.

I would prefer a simple retinal scan.

*is it POE or OPE or EOP? or EPO?

[moda0306]

LOL

[smurff]

Ad nauseum is right. 

I lost that secret decoder card years ago.  If they follow through with ending paper bonds and don't come up with some other non-paper alternative (like gift cards), this will be my last year purchasing savings bonds, i or e.

[Lone Wolf]

I'm not a big fan of the secret decoder card aspect to accessing TD accounts, either.

You're right, that's a super pain in the butt.  One way to address this is that if you have a strongly-encrypted password management tool (like Lastpass or something), take a few minutes to key in your card's contents as a secure note or in the site description.  That way you can spend a little less time wondering where you put that weird thing.

[ZedThou]

You're right, that's a super pain in the butt.  One way to address this is that if you have a strongly-encrypted password management tool (like Lastpass or something), take a few minutes to key in your card's contents as a secure note or in the site description.  That way you can spend a little less time wondering where you put that weird thing.

That's exactly what I did tonight with the password safe program on my phone (turns out that transposing the matrix makes it easier to look up a given cell, especially if displayed in a proportional font). Would be nice to be able to just take a photo of the card and attach that to the password safe entry, but my program is not so fancy.

[WildAboutHarry]

I lost that secret decoder card years ago.

So did I.  I made the mistake (in hindsight) of converting all of my paper bonds to electronic many years ago, prior to the decoder card nonsense.

I decided to buy some of the latest offering but of course no decoder card.  In fairness to Treasury Direct they were very helpful on the phone and prompt in shipping a replacement.

I hadn't thought of entering all pairwise combinations of the card somewhere.  Of course that is fifty combinations!

if you have a strongly-encrypted password management tool (like Lastpass or something)

I though Lastpass had some sort of security breach.  Do you use it?  How do you like it?