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The future of savings bonds is paperless

A dinosaur of the investment world has met its Ice Age. The old-fashioned savings bond, available in paper form since 1935, will soon be available only in an electronic form online. Don't rush. "Soon" means two, maybe three years. No one really knows just how long it will take.

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Instead of visiting your friendly corner bank or credit union to buy a savings bond, you'll need a computer, Internet access and a bank account. You'll have to go online to set up an account with Treasury Direct, the U.S. Treasury's Bureau of Public Debt site for electronic EE, I bonds and marketable securities such as Treasury bills and notes.

"A lot of people aren't happy," says Jackie Brahney, marketing director at "There are many people who aren't really comfortable with Internet banking. They like the security of having the investment in hand. They don't want to rely on the Internet and they don't want Uncle Sam having access to their bank account."

The credit union industry also is unhappy with the move. The National Association of Federal Credit Unions has written to the Treasury urging it to "keep the option of paper bonds alive for at least five years and give people time to adjust to the change."

Dan Pederson, president of and author of Savings Bonds: When to Hold, When to Fold, and Everything In Between, says the move to electronic bonds will leave behind many customers.

"Their customer base is older. If you look at the stats for people over age 50, as many as 25 percent are not online and have no plans to go online. The feedback we're getting is many people won't have any way to participate. That may be just 10 percent of bondholders, but that's a lot when you have 55 million savings bond owners."

Bytes are cheaper
As you might suspect, the primary reason for the change is to save money. The Bureau of Public Debt, which promotes and sells savings bonds and marketable Treasuries, has been closing marketing offices and transitioning toward a paperless system.

The bureau stopped printing paper Treasury bills and notes in 1986. In 2002 it made the I bond available in electronic form, and added the electronic EE bond in 2003.

"In 2001 we had a total budget of $191 million and it cost $165 million to handle the savings bond program," says spokesman Pete Hollenbach.

"We have to maintain something like 12 billion records. When people lose bonds, we do the research. The other thing is we're selling 40 to 50 million individual pieces of paper each year. We'll be saving the cost of printing, postage and the fees paid to the issuing agents, which are mainly banks."

Hollenbach says significantly more than 90 percent of people who participate in the savings bond program have bank accounts, although he says the bureau is concerned about people who don't have computers or Internet access. The transition, he adds, is mandated not only by cost but also by the need to be ready for the generation of investors that expects to do business online.

The electronic bonds will end the age-old problem of dusty savings bonds being discovered in a drawer months or years after they've matured. The government will know your bond has matured and will deposit the proceeds directly into your bank account.

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Buying bills, notes, bonds and savings bonds
The best time to cash savings bonds
Savings glossary
Winners and losers: Certificates of deposit
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