U.S. Savings Bonds for All

Alejandra Lopez-Fernandini — Wed, 09 Sep 2009 20:24:00 -0400

In his Labor day radio address, President Obama announced that beginning in 2010, taxpayers will have the option to purchase a U.S. Savings Bond when filing their federal taxes. The decision to increase access to what is possibly the most secure and low-cost, savings product sends important signals.

The Administration is showing a commitment to promoting economic recovery and household stability through common-sense means and is willing to act on implementation-ready, low-cost, practical, and scale-able proposals. You can find the full text of the White House press release here.

Why this is good news - especially for small savers

Returning the U.S. Savings Bond purchase option to the tax form will make it easier for more than 100 million tax filers to purchase this U.S. security with funds from their federal tax refund when they file their taxes. This maximizes simplicity and minimizes the hassle for the taxpayer who wishes to save a portion of their refund. Those who intend to save and are deterred by limited or unaffordable options can now commit the money to savings before they receive it and are tempted to spend it.

Our good friends and partners, the D2D Fund, have been a leading force behind the savings bond proposal (we are a member of the Savings Bond Working Group). D2D summarized in their recent report, Yes We Can: Inclusive Saving at Tax Time (page 7), the key features of the policy just announced by the President:

Easy - both to implement and to explain to savers
Inexpensive - requires no new annual appropriations, nor fees for citizens
Tested - has precedent; people know and trust it
Inclusive - will help all Americans, especially those most in need of and likely to benefit from saving

What's so special about a U.S. Savings Bond? I think my grandmother gave me one of those....

U.S. Savings Bonds have fallen somewhat out of fashion, at least from their heyday during the World Wars when they were marketed as war bonds to finance our nation's debt.

But sales of Series EE and I Savings Bonds, the most attractive types for smaller investors, have been stagnant for years, reaching a seven-year low in 2007 despite retaining a reputation as an easy-to-use and trusted brand. Here are some of the advantages of a U.S. Savings Bond:

Low purchase price--$50 minimum and no fees or extra costs
No risk to your principal investment (I-bonds are inflation protected)
Exempt from state and local tax
Secure, backed by the full faith and credit of the U.S. Government
No bank account or credit check needed for purchase
No fancy investment knowledge, just a desire to save!

For a quick overview, check out our two-page brief here.

Click here for a short video interview we conducted with Tim Flacke, D2D Fund Executive Director.

The asset building community has long advocated increasing access to affordable, simple savings solutions which fill a need for all savers, but especially for smaller sum savers who have more limited options. D2D also leads a successful pilot initiative which is showing the potential of Savings Bonds to meet the savings needs of low-income tax filers.

Our work is not over yet

While we have reached one critical milestone in increasing affordable savings options to all Americans, our work is not over yet. Some critical steps to getting the most out of Savings Bonds remain, including:

Restore Marketing

Outside of the D2D-led national pilot project, U.S. Savings Bonds are not widely promoted. The availability of bonds, and how to buy them, has suffered low visibility since Congress eliminated the program's marketing budget in 2003. According to D2D's 2009 pilot survey, 61% of respondents didn't know where to buy bonds at all. Renewed marketing of bonds would increase their profile among a wider sector of the population, and likely lead to more sales. The costs of restoring the marketing budget may be offset by the potential increases in personal household savings levels and reduced dependency on public sector supports during economic downturns.

Leverage Existing Infrastructure

Secondly, we must continue to leverage existing systems to streamline the delivery of critical asset-building policies. The IRS Form 8888 (also known as the Split Refund Form) is likely to be the place where Savings Bonds are offered to taxpayers. We believe the Form has further potential and will be best utilized when it can facilitate new account opening, as outlined in the Saver's Bonus and the SAFE-T Account proposals.

Continue Learning from the Pilot

Lastly, the D2D Fund pilot continues, and is currently accepting applications for next year. With many changes likely to happen incrementally, it's important that the field continue learning both about implementation and savings behavior.

More policies will be needed to help get families saving again, but this is an exciting and major first step by the Obama Administration as our national economy begins on the road to recovery by shifting from borrow-and-spend to save-and-invest. In his address, the President reinforced that the nation must depart from its current course "that put the interests of the short-term ahead of the needs of long-term." By mainstreaming the U.S. Savings Bond, countless households will have better access to a liquid saving option. That Savings Bonds are fully under an individual's control is a key ingredient in promoting a sense of security, a personal safety net that can be tapped in the event of an unanticipated expense, or to seed investment in a bigger asset purchase. We can think of no better way to back our own future than with a U.S. Security.

The Saver's Bonus Act of 2008

Reid Cramer — Fri, 01 Aug 2008 15:54:00 -0400

Yesterday Senator Menendez of New Jersey introduced a bill around an idea I've been pushing to give targeted families a larger tax refund if they commit to savings. I wrote about it here in a piece that ran in the American Prospect in April on tax day.

The Senator's bill is called the Saver's Bonus Act of 2008 and it proposes that savings contributed to eligible savings products could be matched on a dollar-for-dollar, up to $500. Eligible savings products inlcude individual retirement accounts, educational savings plans, or interestingly U.S. Savings Bonds. Savings bonds are noteworthy because you dont have to own a bank account to have one. Familiy would qualify for the bonus if they also receive the Earned Income Tax Credit (EITC) and the bonus will be delivered through the tax filing and tax refund process.

Here is what the Senator has to say about his bill.

It is not really clear how much this bill would cost because it depends on how many people qualify for the benefit and then actually make deposits. Estimates are difficult because this has never been done before. I think will end up as a $1 to 2 billion a year proposal. Increasing the EITC by $500 would cost the Treasury about $10 billion a year. But making receipt of this $500 contigent on savings would cost much less. A 20% take-up rate with savings of $250 a year would cost about $1.25 billion and provide a real good marker that this is behavior public policy should be encouraging, Nice job, Senator.

It's Not Unpatriotic to Save Your Tax Rebate!

Reid Cramer — Tue, 15 Apr 2008 17:45:00 -0400

In honor of Tax Day, the American Propspect has run a piece of mine questioning the wisdom of Congress for telling everyone to spend their tax rebates in order to stimulate the economy. People would be forgiven if they felt unpatriotic using their rebates to pay down their debt or build up their saving. But it's not.

A better idea is to give families a bonus when they commit to savings right on their tax return, which is an idea Senator Robert Menendez (D-NJ) is now promoting. He actually is poised to introduce a bill that would create a Saver's Bonus for all households that qualify for the Earned Income Tax Credit.

Check it out here.