Monday, November 15, 1999
YOUR MONEY
Bonds find new market on Web site
BY AMY HIGGINS
The Cincinnati Enquirer
For years, I remember getting the most boring birthday presents from my grandmother. Savings bonds. I didn't understand them and couldn't figure out how to play with them.
Twenty years later, they aren't any more fun or less complex — but perhaps a bit more convenient.
The same computer age that has let you buy stocks, invest in mutual funds and check retirement plans from the comfort of your own Internet-connected living room now lets you buy bonds online.
The U.S. Department of the Treasury Bureau of the Public Debt has expanded its Internet presence with its Savings Bond Connection (www.savingsbonds.gov). The site is complete with definitions, descriptions, savings bonds calculators and even a link to a tally of the public debt right to the penny.
(FYI — It's more than $5.66 trillion as of Nov. 1.)
But even so, the site might not make the investments any easier to understand. As the saying goes, “anything simple you can say about savings bonds is probably wrong.”
In buying a bond, you are lending money to the government. And it promises to pay you back a certain amount after a certain period. That public debt figure? That's mostly owed to people and institutions holding bonds and other government obligations (notes, bills, etc).
The U.S. Treasury introduced the first savings bonds in 1935, at the height of the Great Depression, to encourage Americans to invest in small-denomination U.S. Treasury securities. Specific types of Treasury securities have popped up over the years to pay for certain programs, such as the military efforts in World War II.
Today, U.S. Treasury securities, including savings bonds, are regarded as among the safest forms of investing, especially given the volatility of the stock market.
Safe, and now convenient. In addition to all the great information, the Savings Bond Connection site lets investors buy bonds online using a Visa or MasterCard 24 hours a day, seven days a week.
The site is said to be the latest step by the Clinton administration to make savings bonds easier to buy and a more attractive investment for Americans.
Indeed, according to Treasury figures, private investors hold about 6 percent less in interest-bearing public debt securities in 1999 than in 1996. During roughly the same time period, the number of people owning shares of publicly traded companies increased more than 20 percent, according to a recent study by the Investment Company Institute and the Securities Industry Association.
With an unprecedented bull market raging on Wall Street, it's easy to see why investors are putting their money where it can earn more than 10 percent over the long run.
Even the new rising interest rates for savings bonds released last week don't come close to that figure.
For the next six months through April 30, the interest rate on Series EE savings bonds issued on or after May 1, 1997, will be 5.19 percent, up from 4.31 percent paid in the six months that ended Oct. 31. The government sets new rates each May and Nov. 1 based upon overall interest rates.
The fixed-rate portion of Series I inflation-indexed bonds purchased from November 1999 through April 2000 will earn 3.4 percent, up from a 3.3 percent rate. The bond's earnings rate — a combination of its fixed rate and the inflation rate — is now 6.98 percent.
You pay no state or local income taxes on interest from savings bonds, and federal income tax is deferred until the bond is cashed in. And if you use the bonds to pay for higher education tuition, you could avoid the federal income tax.
Skipping taxes is always exciting — especially compared with a Barbie that would have ended up bald and buried in the sandbox. Maybe my grandmother really wasn't so boring.
Amy Higgins writes about personal finance for the Enquirer. You can reach her at ahiggins@enquirer.com.
Lifetime care a challenge to plan
Tips for preparing for future
Bonds find new market on Web site
ASK THE MONEY PANEL
Gates goes on offense with new-tech collaborations
Online companies in TV program battle
PEOPLE ON THE MOVE
