Wednesday, July 13, 2011

I-Bond Investors Get Shafted Yet Again

July 13, 2011
Treasury to End Over-the-Counter Sales of Paper U.S. Savings Bonds; Action will save $70 million over first five years

"Savings bonds are very much a part of this country's history and culture, and will remain a part of America's future – but in electronic form," said Public Debt Commissioner Van Zeck. "It's time for us to take a 1935 model and make it a 21st century investment tool."

I love the 1935 reference. That really makes me feel good about our future. It's always nice to be reminded of the Great Depression, but especially as it relates to debt.

You know what else makes me feel good? All this modernization!

One way they modernized I-Bonds was to reduce the amount we can buy from $60,000 per year ($30,000 in online bonds and $30,000 in paper bonds) to $10,000 per year ($5,000 in online bonds and $5,000 in paper bonds). That was announced in

They then re-modernized them by reducing the amount to $5,000 per year ($5,000 in online bonds only starting on January 1, 2012). That's a 92% total reduction in the amount of I-Bonds we can buy each year. It is even less if one factors in what inflation is doing to the fixed $5,000 limit.

This is in addition to the modernizing they have done by reducing the amount of interest paid on new purchases from 3.6% over inflation in 2000 to 0.0% over inflation today. This was done to more closely match the modern real yield investments of the 21st century. For example, today's 5-year TIPS yield of negative 0.54% makes I-Bonds a modernized screaming bargain right now.

Isn't the new "21st century investment tool" economy fun! There are so many modern investments and so many modern tools!

Disclosure: I have over 25% of my net investment worth (not counting my house) sitting in I-Bonds. Unlike most investments the seller really wants me to stop buying though. It's like the horses are escaping and they are desperately attempting to nail the barn doors shut. Go figure.

Special thanks to Anonymous for pointing this news story out to me in the comments of the previous post.


Stagflationary Mark said...

I want to remind everyone that you can still buy $5,000 in online i-bonds and $5,000 in paper i-bonds this year.

If you buy anytime before November 1st you'll even get a 4.6% composite rate for the first 6 months.

That means no matter what inflation does over the next year you'll be guaranteed a minumum 2.3% return for the year. That's true even if you cash them out in a year and take the 3 month interest penalty. (You must hold a year. The penalty goes away if you hold 5 years. You may hold up to 30 years. Your choice.)

It might not seem like much, but it would take 15 years to earn 2.3% at today's 0.16% 1-year treasury yield. Sigh.

Stagflationary Mark said...

I forgot to mention the best part about all this modernization.

I won't need to go to the bank and speak to a person to buy I-Bonds each year. Isn't that wonderful?

I bet that person will have less to do. It might not be much, but every little bit helps. If there is enough non-work to do, that person can be sent home permanently.

It really is like the Jetsons, only with higher unemployment.


And one wonders why I am bearish.

Stagflationary Mark said...

Here's an added bonus.

The government claims it will save $70 million over 5 years.

Don't you see what this means? It can use THAT money to pay higher unemployment claims from those who might have previously been involved in the printed manufacture of the bonds, sold them to me, and/or delivered them to me in the mail (my mailman).

Win win win!

This is like the best economy ever for sarcasm. Our forefathers really missed out.