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The paper savings bond is headed for extinction.
The federal government is moving the U.S. savings bond program online, converting from paper to electronic book-entry registration. Sometime in the next two to three years, it intends to stop issuing paper certificates altogether.
When that happens, investors will no longer be able to buy a savings bond at a local bank, although banks will continue to redeem bonds indefinitely.
Instead, an investor will have to go online to open an account with the government and link it to a bank account so money can be electronically transferred when savings bonds are bought or redeemed.
These government accounts, known as Treasury Direct, are based on the model used for direct purchase of Treasury securities and are already available to savings bond investors on an optional basis through the savings bond Web site, www.savingsbonds.gov Eventually, investors will be able to hold Treasuries and savings bonds in the same account.
"We want to be in a world where everything is done electronically," said Peter Hollenbach, a spokesman for the Treasury Department's Bureau of the Public Debt. "Intuitively, we know it's going to be less expensive because we won't have all the costs associated with paper. That ranges from literally printing them to vaulting them, controlling and distributing them, postage fees and record keeping. One of our biggest costs for the savings bond program is literally maintaining the records."
Investors hold about $188-billion in U.S. savings bonds, which have been particularly popular the last few years because their interest rates have fallen more slowly than those on other investments.
Savings bonds were designed to appeal to small investors, and the new system will take that into account. It will continue to be possible to open a Treasury Direct account for as little as $25, Hollenbach said. There are no fees.
"It takes five minutes," he said. "We're trying to structure this thing so we leave as few people behind as possible, although we realize there's always going to be someone who's not going to want to do it."
Savings bond investors have mixed feelings about the planned changes.
"I could accept that; let's save the trees," said William Bauers, 75, a retired teacher in Pinellas Park. "I hold stocks that way, and I don't see this as being any different."
However, Dorothy Williamson, 74, of Hudson, worries that it will make gift giving more difficult for her. She said she buys bonds as Christmas gifts for her three children every year and likes the convenience of getting them at the bank.
"I'm not up to wrapping presents and sending them, so I just give them all bonds," she said. "I've been doing it for years and years."
Treasury officials are still working on the details for handling gift accounts, but the bonds' popularity as gifts could be a casualty of the new system.
"A lot of seniors buy bonds as gifts," said Daniel Pederson, author of Savings Bonds: When to Hold, When to Fold and Everything In-Between. If the government doesn't handle the transition carefully, "They'll end up not just sending people away, but sending them away mad."
Electronic accounts offer advantages to computer-savvy investors, who can look up their holdings on the Internet any time of day or night. The new system will allow them to find out at a glance how much their savings bonds are worth and what interest rates those bonds are earning. Those two key details are a mystery to most savings bond owners because interest rates change twice a year and depend in part on the date a bond was issued. Often bond owners don't even realize it when their bonds stop earning interest.
Sometime next year the Treasury plans to invite savings bond investors to deposit their paper savings bonds into Treasury Direct accounts, allowing them to manage all their bonds in one place. The details of shifting those accounts from paper to online form have yet to be determined. But those who want to hang onto their paper certificates will be able to do so.
Also next year, the Treasury plans to move to electronic accounts for payroll deduction savers.
"What we're looking at is a model that's a lot more like sending a deposit to your credit union," Hollenbach said.
Other changes are in store as well. The government plans to stop issuing HH savings bonds next year. These fixed-rate bonds can be purchased only by redeeming E or EE bonds, which allows the investor to continue deferring taxes on the interest those bonds have earned.
About $13.7-billion in HH and H bonds are outstanding, but they became much less attractive this year when the interest rate on new bonds dropped from 4 percent to 1.5 percent.
"They don't fit with our overall strategic direction," Hollenbach said.
In addition to eliminating paper, the government's electronic strategy is designed to eliminate the need to rely on intermediaries and pay them processing fees. Investors who have been buying savings bonds by credit card will lose that option at the end of this year.
The Treasury Department is also eliminating its regional savings bond marketing offices, including one in Tampa.
Author Pederson said putting savings bonds into the same system as Treasury securities will create marketing opportunities for the government.
"By getting them all under the same umbrella, they have the opportunity to cross-sell other Treasury products," he said.
- Helen Huntley can be reached at huntley@sptimes.com or (727) 893-8230.