Savings Bonds: A Thing of the Past

Savings Bonds: A Thing of the Past

You may remember getting them as a child for your birthday. You may remember giving them to your child or grandchild for their birthday, as a wedding present, or for finishing high school. Savings bonds were a gift almost equivalent to cash, but instead of burning a hole in the pocket of the receiver, they taught the value of saving money.   Not to mention, they looked a lot better than cash, too. But recently, savings bonds have begun to decline in sales, almost to obsolete levels. Why is this the case, and is there a way that savings bonds can make a comeback?

The Birth of the Savings Bond

In the middle of the Great Depression, Franklin D. Roosevelt, then President, signed a bill creating the savings bond and allowing the U.S. Treasury to sell such a bond. Their main purpose at the time was to help fund war efforts, and after the bombing of Pearl Harbor on December 7th, 1941, the savings bond became officially known as the “War Savings Bond.” Citizens could buy these bonds for ¢10 a piece, and all of the money that they gained went directly to the war effort. After WWII ended, the bond maintained its popularity as an investment for citizens. In 1976, then President Gerald Ford celebrated the 35th anniversary of the savings bond with a film called ‘An American Partnership.’ This film mainly celebrated the role that American’s played in the growth and development of the nation’s wealth and commerce.

Savings Bonds in the Digital Age

Savings bonds continued their high rate of sale through the early 21st century. Citizens of the U.S. bought 40 million savings bonds in the year 2000. But, the era of savings bonds was coming to an end. After the market crash of 2008, the U.S. Government was looking for ways to cut back on spending, and what better way than to cut back printing paper. The Treasury Department had already made the option of buying bonds digitally in 2002, but on January 1st, 2012, the Treasury Department discontinued sales of all paper savings bonds. That brought the level of bonds sold in 2013 down to an all time low of 400,000. That still may seem like a large number, but when comparing it to 40 million sold in the year 2000, that’s a dramatic decrease in sales.

The Death of the Savings Bond

Ridding the market of paper bonds was a sign that the U.S. Government really didn’t care for them any more. The new digital savings bonds were not only more difficult to buy, but there was little to no incentive to buy them.   Bonds used to be able to double in value in eight to ten years, depending on the bond, but now, bonds make only .5% interest per year. That’s less than most savings accounts. Taking into account the rule of 72, it would take a whopping 144 years to double your investment on a $50.00 bond. But, the Treasury has realized this problem, and promises to double investment in 20 years, but you have to wait the full 20 years from date of purchase.

Savings bonds used to be a safe place to invest your money. Collecting higher interest than other means of low risk investment was a great draw for people looking to make a buck or two in the long term. But now, thanks to the digitization of the process and the eradication of the higher interest bond, the savings bond has almost disappeared.

Are you looking for another safe place to invest your money now that bonds have gone by the wayside? Click the button below to make an appointment with one of our financial advisors. We’ll make your money work for you in ways you’d never thought possible.

Sources:

http://www.fool.com/investing/general/2014/12/28/savings-bonds-the-key-facts-you-need-to-know.aspx

http://money.cnn.com/2014/06/14/investing/savings-bonds/

http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds.htm

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