Savings-Bond-Advisor

TreasuryDirect now allows entity registrations

Tom Adams — Tue, 23 Jun 2009 15:00:45 +0000

Entities such as trusts, estates, and businesses can now open accounts to hold Savings Bonds or other Treasury securities in TreasuryDirect. Prior to this change, only individuals with Social Security Numbers were allowed to have TreasuryDirect accounts.

The new options allow registrations in the name of a corporation, LLC (limited liability company), PLLC (professional limited liability company), partnership, sole proprietorship, estate of a decedent, estate of living person (such as an incompetent or minor), or trust.

Registrations are not available for unincorporated associations, governmental organizations, or tribal organizations.

Each account is allowed to have one entity account manager who has the password and can manage the account holdings.

A new entity account can be opened online at TreasuryDirect. You will need the entity's name, employer tax ID, IRS name control, bank information (name of bank, routing numbers, name on the account), entity account manager information (name, social security number, birth date, email address), and will be allowed to select a password, password reminder, and set three security questions.

For more information, see:

Inflation update of June 2009

Tom Adams — Wed, 17 Jun 2009 06:00:28 +0000

For May, the Consumer Price Index for All Urban Consumers (CPI-U) was 213.856, the Bureau of Labor Statistics announced today. This is down 1.28% from its level a year ago, up 1.35% (annualized) from its level six months ago, and up 0.29% (actual) from last month's 213.240.

The Series I bond inflation component is based on the difference between the March and September levels of the CPI-U. The March level was 212.709. If inflation for the next four months matched the rate since March, the next I bond inflation component would be 3.24%.

For TIPS, the outstanding principle is adjusted up or down, using a daily index, to compensate for inflation. Today's inflation announcement will be applied to TIPS next month. Expressed as an annual rate, next month's TIPS inflation adjustment will be 3.47%.

The red line on the following graph shows the level of the CPI-U for each month since Series I bonds were introduced.

The blue lines in the graph are each six-months long and begin on their left end in March or September and end on their right end the following September or March.

The up-and-down space between the blue lines represents the change in the CPI-U during the six-month period.

The percentages on the graph indicate the change, expressed as an annual rate, for each six-month period. These are the same percentages the Treasury uses to calculate composite Series I bond interest rates for these periods.

When the inflation component goes negative, as it did in the September 2008 - March 2009 period, it can wipe out an I bond's fixed rate. However, an I bond's composite rate can't go below zero, no matter how deeply the CPI-U dips. This gives I bonds an advantage over the Treasury's big-boy inflation security, TIPS, which do decline in value when the CPI-U change is negative.

It's clear from the questions I receive that many I bond investors don't understand that the rates earned by their I bonds change every six months based on the inflation rate.

For the curious, here's complete information on how I bond interest rates are determined.

The CPI-U uses the price levels of 1982-1984 as its base of 100.

Series I Savings Bonds vs the stock market

Tom Adams — Tue, 02 Jun 2009 09:00:44 +0000

Ask 100 financial advisors whether stocks or Savings Bonds are the better investment for the long term, and all the ones who earn commissions selling stocks will tell you that stocks are always the better investment.

Let's take a look and see if they're right. The following figure shows the results of investing an equal amount each month in both Series I Savings Bonds and the Vanguard 500 Index fund.

The graph begins when Series I Savings Bonds were introduced in September 1998 and has been updated through June 1, 2009.

The thin, black line shows how much money has been invested. It goes up very steadily because an equal amount of money is added each month. This month, it's at 130. In other words, the total amount invested is whatever equal monthly investment you choose times 130.

The upper blue line is the total value of the Series I Savings Bond investment. Note that this line never goes down. This month it's 176.36 times the monthly investment. This is 35.7% more than the total amount invested.

The red line that goes both up and down is the total value of the stock market investment, including reinvested dividends. This month it's at 114.97 times the monthly investment, up from last month's 105.54. This is 34.8% less than the value of the Savings Bond investment and 11.6% less than the total amount invested.

Because of the ongoing financial crisis and recession, if you need to cash your stock investment now you'll not only get back less than the I bond investment, you'll get back less than you put in. The same thing happened between 2001 and 2003.

Now is actually a relatively good time to put your monthly investments in the stock market rather than in Savings Bonds.

At any rate, no matter what this graph says, don't buy Savings Bonds expecting to outperform stocks.

Buy Savings Bonds because you can't get back less than you put in. They make a great foundational choice for the low-risk portion of your investment portfolio.

That said, it's clear that people who tell you that a stock investment always outperforms an investment in Savings Bonds don't know what they're talking about.

Savings-Bond-Advisor in the news

Tom Adams — Mon, 04 May 2009 13:00:50 +0000

Hey, we're in the newspaper!

May 4, 2009 - USA Today - Inflation-adjusted Savings Bonds hit 0% rate for first time - Sandra Block
May 2, 2009 - Wall Street Journal - 'I Bond' Payments Get Wiped Out - Jane J. Kim
May 1, 2009 - The Oregonian - I-Bond rate at 0% but don't panic or redeem just yet - Brent Hunsberger
December 17, 2008 - Forbes - Are savings bonds a safe bet as gifts? - Erin Conroy
December 10, 2008 - Dow Jones Newswire - Getting Personal: How Deflation Would Affect TIPS, I-Bonds - Ian Salisbury
October 28, 2008 - Wall Street Journal - Here's One Safe Haven With Attractive Yields - Jane J. Kim
May 2, 2008 - Baltimore Sun - Time to buy an I bond has passed - Eileen Ambrose
April 29, 2008 - Baltimore Sun - Price rise good for I bond investors - Eileen Ambrose
April 22, 2008 - USA Today - Now would be good time to invest in I Bonds - Sandra Block
April 20, 2008- Wall Street Journal - Buy Series I Savings Bonds Before May Day - Emily Green
April 17, 2008- Wall Street Journal - Inflation-Linked Bonds May Offer Inviting Rate - Jane J. Kim
April 17, 2008- St. Louis Post-Dispatch - An opportunity in I bonds - David Nicklaus
March 3, 2008 - Christian Science Monitor - Options few when U.S. Savings Bonds Mature - Steve Dinnen
December 4, 2007 - San Francisco Chronicle - Treasury takes new whack at savings bonds - Kathleen Pender
November 4, 2007 - Providence Journal - Savings bonds offer a safe harbor - Neil Downing
May 5, 2007 - Wall Street Journal - Cashing In Matured Savings Bonds May Be Best - Kelly Greene
April 30, 2007 - Christian Science Monitor - Asset allocation for seniors, and what are the taxes on $1.9 million in savings bonds? - Steve Dinnen
November 2, 2006 - Wall Street Journal - I-Bond Rates Are Raised to 4.52% - Jane J. Kim
October 23, 2006 - USA Today - Inflation-adjusted Savings Bonds could look more lackluster soon - Sandra Block
October 11, 2006 - Christian Science Monitor - Advice on opening a Roth IRA, digging out of debt, and US Saving Bonds rules - Steve Dinnen
October 2, 2006 - Christian Science Monitor - How is the base rate figured on the Series I US Savings Bond? - Steve Dinnen
October 1, 2006 - Chicago Tribune - Keeping stock of savings bonds yields benefits - Andrew Leckey
July 8-9, 2006 - The Wall Street Journal - Buying Treasuries Online: How Safe Is It? - Eleanor Laise
June 5, 2006 - Christian Science Monitor - No simple strategy to avoid taxes on US Saving Bonds - Steve Dinnen
May 22, 2006 - Christian Science Monitor - A.W. in Escondido asks… - Steve Dinnen
May 21, 2006 - Kansas City Star - Taking stock of bonds - Gene Meyer
May 2, 2006 - San Francisco Chronicle - I bond rates get slashed - Kathleen Pender
May 1, 2006 - Providence Journal - Before you buy savings bonds, look at the rates - Neil Downing
April 28, 2006 - USA Today - I Bonds' interest rate will get that sinking feeling May 1st - Sandra Block
April 24, 2006 - Christian Science Monitor - Does Series EE have better returns than Series I? - Steve Dinnen
April 17, 2006 - Christian Science Monitor - Time horizon will help you determine when to make a move on I bonds - Steve Dinnen

New I bond fixed rate 0.10%; EE 0.70%

Tom Adams — Fri, 01 May 2009 15:00:50 +0000

The inflation component for I bonds for the next six-month rate period is -5.56%, which will wipe out the fixed base-rate on all issues of I bonds, including newly issued I bonds.

New I bonds will sport a fixed rate 0.10%, the second-lowest ever. All I bonds, including new ones, will have an interest rate of 0% during their next six-month rate period, which begins today for bonds issued in May and November and in later months for bonds issued in other months.

The fixed rate is good for the life of the bond; the inflation component is adjusted every six months based on changes in the Consumer Price Index.

The spread between the I bond fixed base rate and the 10-year TIPS will be 159 percentage points, the second largest spread since I bonds were introduced. The 10-year TIPS rate on Friday was 1.69%.

The 0.70% rate on new EE bonds shows the Treasury is still fine with taking advantage of EE bond investors. It's the lowest EE rate ever offered, and is less than half the 1.64% EE bonds issued under different rules from May 1997 to April 2005 will be earning during their next six-month rate period.

What does Restricted Security mean in TreasuryDirect?

Tom Adams — Thu, 05 Mar 2009 16:31:11 +0000

In 2008, I purchased $5,000 worth of I bonds through TreasuryDirect and $5,000 in paper. At the end of the year, I converted the paper to electronic. On the list of converted bonds, I had some others from much earlier years, the 2008 bond is noted with the status of "Restricted Security." None of the others, in the converted or non-converted account indicate this status. What does this mean?

Tom's response

In general, you can do anything with a converted Savings Bond in TreasuryDirect that you can do with one purchased there directly. However, removing or changing the name of a co-owner on converted Series E, EE, or I bonds, or removing or changing a beneficiary on converted Series E bonds, requires the permission of the person whose name is being removed. This can't be done online. The Restricted Security designation means that this particular bond is one that would require an offline form to change the registration in this manner.