|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.
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
Direct, the U.S. Treasury's Bureau of Public Debt site for electronic
EE, I bonds and marketable securities such as Treasury bills and
"A lot of people aren't happy," says Jackie
Brahney, marketing director at SavingsBonds.com. "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
Dan Pederson, president of BondHelp.com and author
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.