US Savings Bonds

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.

Talking Tax Time with Tim Flacke: U.S. Savings Bonds

Alejandra Lopez-Fernandini — Mon, 11 May 2009 19:15:00 -0400

Last month Tim Flacke, Executive Director of the Boston-based nonprofit, Doorways to Dreams (D2D) Fund, and I sat down for a short conversation about the power of an existing but often overlooked savings product: The U.S. Savings Bond.

Click the box below to watch the video, and to learn about the strengths of the product. Specifically, we discuss why policymakers should consider tweaking the delivery and access mechanisms to make these bonds a more robust resource for all American savers, but especially small, first-time or risk-averse investors.

Want to learn more?
Click here to find our two-page issue overview on U.S. Savings Bonds.
Also, the staff and website of D2D is a superb resource. Be sure to check out the forward thinking paper by D2D founder, Peter Tufano and researcher Daniel Schneider.
Lastly, don't miss this NEW and moving 2-minute video of the impact of bonds--in the words of recent bond buyers.

Interested in other "Talking Tax-Time" videos?
Click here for Cathie Mahon and David Newville
Click here for David Marzahl and Melissa Koide

Saving Across America

Ellen Seidman — Thu, 24 Apr 2008 14:44:00 -0400

Last week I had the privilege of discussing asset building for lower income Americans in three very different settings: the annual Opportunity Economics Colloquium of the Hope Street Group, held at the Lansdowne Resort outside of Washington; an Assets Forum sponsored by the New America Foundation in the State Capitol in Sacramento, California; and with a group of financial services, social service and foundation representatives brought together by the City of Seattle. While the settings and audiences varied, the theme was the same: how to empower and encourage all Americans, particularly those who do not have funds either to cushion an economic setback or to invest to achieve economic security, to take sustainable first steps toward saving. Given the current financial crisis, one wishes these discussions had started ten years ago, but that same crisis makes it all the more important that they're happening now.

Our group at Hope Street, which included policy types and investment bankers and other private sector players, young and less young, from both coasts, was assigned the task of recommending policies that would be effective to increase to 50% the percentage of Americans who had savings to cover six months of operating expenses. In other words, unlike the usual Washington policy debate, this was not about pension and retirement savings, important as those are. We settled on a goal of about $10,000-recognizing that it was low, but to give us a target to shoot for-and focused on liquid assets, while recognizing that bankable non-liquid assets, such as a home, can sometimes serve the same purposes. While we didn't stick entirely to the task, in that at least one of our policy recommendations is a bet on the longer term, the policies we chose would all constitute effective steps toward the goal.

After four hours of robust discussion and debate, we settled on five top policy recommendations. These are: build a new generation of savers by seeding a savings account for every child-to become available at age 18-with $500 and, as in the United Kingdom, use the new account to enhance the financial literacy of the entire family; encourage greater competition in the consumer financial services sector-while recognizing the need for effective consumer protection-to increase innovation in products and services that serve the bottom half of the wealth distribution; encourage greater efforts in the workplace to provide easy, automatic paths to saving beyond retirement saving, and financial education about how to manage and grow those savings; revitalize the US Savings Bond program, which provides a totally safe, small denomination, non-account-based, modestly liquid vehicle for saving in small amounts; and stop punishing savings by substantially modifying the asset limits that discourage everyone from TANF recipients to applicants for Pell grants for higher education from saving. The Hope Street colloquium ended with presentation of these ideas to representatives of the three Presidential candidates.

In Sacramento, the focus was on financial literacy, both to build on and to build up momentum for the California Financial Literacy Initiative (AB 2123), introduced by Rules Committee Chair Ted Lieu and sponsored by California Controller John Chiang. We discussed the increased need for financial literacy in a world of enhanced individual responsibility for financial health, a younger and older population, and ever more complex financial products from a widening array of providers. The Financial Literacy Initiative is a platform on which the state and its partners can build both financial literacy resources and outreach. Already the California Library Literacy Services has indicated interest in adding financial literacy to its broader literacy initiative, potentially bringing this type of education into a trusted resource for adults in over 600 communities. A particularly innovative element of AB 2123 would start the process of establishing a Financial Literacy Corps to mobilize financial professionals and others to provide unbiased financial advice to low- and middle-income families who are now without this resource. New America Foundation is working on this concept on a national scale and it is exciting to see it begin to take shape in California.

Seattle and King County have been working on a series of asset-building initiatives, including a Bank on Seattle program. The participants in the asset-building coalition-city and county officials; social service agencies; banks, thrifts and credit unions; and the philanthropic sector-are focused on building pathways to enable people to better meet their financial needs. We spent our time discussing what was needed, the roles of all parties, examples of success and best practices, and what the literature tells us. Specific areas of concern were bringing people into bank accounts and linking those accounts to saving; effectively coordinating financial education with the opportunity to use what was being taught; small dollar loans; and the challenges of banking immigrants in both urban and rural settings. Participants were very interested in the Federal Deposit Insurance Corporation's small dollar loan pilot program, both for what the 30 bank participants in that program (none of them, unfortunately, in Washington State) will be trying and demonstrating and because the FDIC will be disseminating the learnings widely.

It is enormously exciting that the importance of building savings and assets-of establishing the underpinnings of financial stability-has gained such interest in such a variety of venues. It is even more exciting that people across the country, from all sectors, are working together to develop and implement long-term, sustainable strategies to make financial stability attainable for everyone.