VOL. 129 | NO. 172 | Thursday, September 4, 2014
Rays of Wisdom
Dana and Ray Brandon
US Savings Bond – A Golden Oldie
By Ray and Dana Brandon
Ray’s take: U.S. savings bonds are debt instruments issued and fully backed by the federal government and were once touted as a great way to be patriotic. Their attraction historically has been safety (yes), deferred taxes (yes) and convenience (maybe). Traditionally, they were a staple gift for graduates, newlyweds and newborns.
Now they seem to be going the way of the landline telephone.
According to the U.S. Treasury Department, sales of U.S. savings bonds plummeted from over 400 million in 2000 to just over 40 million in 2013. So, what happened?
For one thing, over the course of the last decade, interest rates have plunged for savings bonds, making them less and less attractive. Additionally, in 2012, the Treasury Department stopped issuing paper certificates that could be purchased at most banks and brokerages and made purchasing them via the Treasury Department website the only way to obtain them. Paper certificates have nostalgia, but are very difficult to manage over time.
Billions of dollars in savings bonds have stopped earning interest but haven’t been cashed. We’re now talking about savings bonds issued in January 1984 and earlier that reached maturity after 30 years. Once a bond reaches its maturity date, it may not accumulate additional value and you might want to look at other ways to invest that sum of money.
Like any other investment or savings instrument, U.S. savings bonds interest rates go up and down. What doesn’t look very positive today could become a great tool later. You should speak to a financial or tax expert to determine the best products for your future.
Dana’s take: In the kids' movie “Alvin and the Chipmunks,” Dave, their human host, gives the chipmunks a special Christmas gift. “They're savings bonds. In seven years, you will get to buy something really nice." Alvin replies, "Do you have any that you bought seven years ago?"
A couple of generations ago, U.S. savings bonds were considered a thoughtful gift. Today, they'd rank right up there with getting a videocassette of a Barney movie. Should we return to opening savings accounts as gifts rather than the gadget of the hour?
If saving for college is your focus, there are options such as a 529 Plans or Coverdale ESAs that are specifically designed for higher education. Or, if you just want to put money aside for your children that is not education specific, there are Uniform Transfer to Minor Account (UTMA) and Uniform Gift to Minors Account (UGMA) accounts.
Saving for our kids’ future is an important step in our family financial planning. Be sure to explore all the options, and restrictions, available to determine which one will best suit your needs.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.