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IRS still issuing paper bonds

By Kay Bell · Bankrate.com
Tuesday, February 12, 2013
Posted: 3 pm ET

I'm one of those folks with each foot in a different world. Or, some might say, in different times.

I love my smartphone, iPod and tablet. I bank and pay bills online. And how did I ever watch TV without a DVR?

But I still read "real" books. I don't use my smartphone to text. And I have a batch of savings bonds in my safety deposit box.

Yes, a real stack of real pieces of paper that are, as the saying goes, backed by the full faith and credit of the U.S. government.

It's not easy to get actual savings bonds anymore. You used to be able to purchase them at financial institutions or, as I did, collect them via a workplace purchase plan. But on Jan. 1, 2012, Uncle Sam basically forced us to go online to buy savings bonds.

The Internal Revenue Service, however, is there for us old-school savings bond fans.

As noted in a recent Bankrate Daily Tax Tip, you can use up to $5,000 of your tax refund to buy Series I savings bonds.

This is the fifth tax-filing season that we've been able to buy bonds with our tax refunds. It's the fourth year, notes U.S. Treasury spokesman Jerry Kelly, that taxpayers can get the bonds in paper form.

Even though savings bonds are available electronically, to many the program seems like a relic out of your grandmother's day. Well, I'm nobody's grandma (although if I were, I'd be a really cool one!), and I can see why some folks still like savings bonds.

True, savings bonds are not where you want to be if you need quick access to your money. To get the full benefit of the earnings, you need to hold them for at least five years.

But if you want to stash cash for a longer-term goal, the interest rate on Series I savings bonds, so named because one of the bond's components is an interest rate that is adjusted every six months for inflation, is appealing. Right now I bonds pay an annual interest rate of 1.76 percent for the first six months. My nine-month CD is paying 0.3 percent.

Savings bonds also have some tax advantages. You won't owe state or local income tax on the interest your bonds earn. At the federal level, tax is deferred until you redeem the bonds. And if you use the bonds to pay for college, the interest could be totally tax-exempt.

These are some of the reasons why I have some company in my savings bond fan club.

"It's a small, but steadily growing program," says Kelly of the savings bonds purchased with tax refunds. Last year was the biggest so far, he notes, with 36,000 taxpayers choosing that refund option, resulting in the issuance of a little more than $120 million in bonds.

"Tax refund time is the one time of year that many people have their largest payday, so to speak," says Kelly. "If they are looking for a place to put that where they can establish savings, savings bonds are a simple way to do that."

Of course, some of the folks probably opted to collect their tax refund bonds electronically. That's an option if you have or establish a Treasury Direct account before you file your return.

But if you want to hold a paper bond in your hand, then getting one as part of your tax refund is the only way to do that. It will be delivered to you via the similarly old-fashioned U.S. Postal Service.

How long will we traditional fans of this government financial instrument be able to get paper bonds?

"We are confident that taxpayers will be able to deposit all or some of their refunds in a Treasury Direct account for the foreseeable future," says Kelly. "But we don't know how much longer they will be able to get paper bonds."

So if you want a paper bond, for you or as a gift for your kids or grandkids -- yes, you can do that, too, with your tax refund; just add the recipient's name as a "co-owner or beneficiary" on Form 8888 -- think about buying some savings bonds with your refund this filing season.

In coming years, we old-school savings bond fans are likely to find we've been pushed totally into the electronic age.

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