Update: The Treasury Department announced the fixed rate component on new Series I bonds would be 0.30% for the bonds issued in the next six months. Coupled with the inflation component we all know ahead of time (see below), the new Series I bond rate will be 3.36% for the next six months.

For the last six months, my Series I Savings Bonds have been earning exactly 0.00% APY interest. If you remember from the Savings Bond Foundation post, Series I savings bonds earn interest based on an equation that has both an inflation rate component and a fixed rate component.

The inflation rate component is set twice a year, November and May, and calculated based on six months of inflation data. The November rate is set based on inflation between March and September, the May rate is set based on inflation between September and March (see how that works out?).

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Between the various bailouts, rescues, and spending packages, the United States Treasury has been working overtime issuing debt. If you’re like me, you’re probably wondering how this is even possible and how the government goes about doing it. During the First World War and World War Two, we went through a similar period where the government needed to borrow a lot of money to help fund the war effort. That gave rise to the patriotic posters that called for ordinary Americans to buy war bonds to support our soldiers fighting the enemy on foreign soil. That same mechanism, public debt, is what we use today to help fund many of our programs. This makes it a prime topic for the third installment of the Foundation Series.

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Last year, the Treasury Department limited the amount of Series I and Series EE Savings Bonds that a US Citizen could purchase in a single year to, effectively $20,000 (TreasuryDirect release). The limit had been $30,000 in paper certificates and $30,000 in electronic certificates for each the Series I and Series EE bonds, meaning you could feasibly purchase $120,000 in savings bonds ($30k electronic Series I, $30k paper Series I, $30k electronic Series EE & $30k paper Series EE) a year ago. The current limit not drops the total amount of savings bonds you can purchase to $20,000 a year (which is still a lot for most Americans).

Why? The stated reason was to “refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest.” That is not achieved by lowering the maximum limit, that was achieved when TreasuryDirect allowed you to purchase electronic bonds as low as $25 each.

Another reason was that “Approximately 98 percent of all annual purchases of savings bonds by individuals are for $5,000 or less.” Again, that’s not a legitimate reason to lower the maximum limit. The “it won’t affect that many people” defense won’t work for a lot of things, I don’t see why it’s viable here.

I suppose you could make the argument that lowering the maximum will help those with smaller sums if there was a limited supply of US Savings Bonds. However, if you take a look at our growing debt and growing deficit, you’d be hard-pressed to make the argument that US debt is in short supply.

So why? I’m at a loss and I don’t understand it well enough to make much of an informed guess. I would’ve expected the US government to want to be indebted to its own citizens, rather than foreign interests, so perhaps there is something else going on? I tried searching online but didn’t find any editorials or other insights into why the rate was (really) lowered. Anyone have any thoughts?

Incidentally, the Treasury announced the new rates and the fixed portion of the Series I Savings bond dropped from 1.2% to 0.00%!

Today is the very last day to take advantage of the 1.20% fixed rate component on Series I Savings Bonds (unless they remain at 1.20% in the next six-month period) and if you don’t have an active TreasuryDirect account with a linked bank account, you won’t have enough time to open one and purchase electronic bonds by the close of business today (last day in April). Fortunately, you can purchase paper savings bonds from most major banks and credit unions through Form PD F 5374 (I believe PD F stands for Public Debt Form) Order for Series I US Savings Bond that they should have on hand.

The form takes about five minutes to complete and allows you to purchase bonds for yourself or on behalf of someone else. All you will need is the owner’s social security number and the amount of the bonds in cash, cashier’s check, or personal check from the bank you’re buying the funds from. If you’re buying it through M&T Bank, to use a personal check you’ll need to have an account there and use a personal check from that account. It’s not a problem if you don’t have a personal check, you’ll simply withdraw the funds and have the bank issue a cashier’s check (that’s what I did).

Remember, there is an annual limit of $5,000 per social security number for the Series I Savings Bond – be sure not to exceed that (I assume the bank will notify you if you try to purchase too much). Also, you may purchase $5,000 in paper bonds and an additional $5,000 in electronic bonds. (I bet this is because their paper and online systems aren’t connected so there’s no way they could enforce a single shared limit)

Lastly, the bonds won’t be issued right there, but the effective date of the bonds will be that date. The bank is authorized to act as an agent of the Treasury Department and so the purchase is effective as of the date on the stamp. When I bought them yesterday, it had a effective stamp date of April 29th. According to the back of the order form, processing takes about three weeks.

Did you know that a court reporting can bank close to $60k? Or that paramedics can expect less than $30k? A CareerBuilder article on CNN details five surprising salaries.

For those of us without surprising salaries and have considered Treasury bonds in our tumultuous times, the Treasury department just lowered the “minimum and multiple of” price for Treasuries to $100, from $1000. A week ago, if you wanted a marketable security from the Treasury, the starting amount was $1000 and had to be in multiples of $1000. Now, it’s a mere $100. That’s a good thing, except Jaffe considers them overpriced at the moment. If you are happy keeping it in a bank, do consider an online bank with a high yield savings account.

N+1 put out their second interview with a hedge fund manager (here’s the first interview back in January 2008) in which they discuss Bear Stearns and the credit crisis. It does a thorough and clear job of explaining a complicated issue and will give you a firm grasp of what exactly this “credit crisis” really is about and why there is a crisis in the first place.

Finally, I, along with several others, was asked by JD what I splurge on and was included in a very entertaining post that captured what several pfbloggers splurged on. I wrote about how splurge on experiences and vacations, which was a “vice” shared by Pinyo of Moolanomy, Nina of QueerCents, Cap from StopBuyingCrap, and Nickel of FiveCentNickel. There were really three camps, those who splurged on stuff, those who splurged on experiences, and those who splurged on food. Very interesting introspective!

Have a great weekend!

In an press release today, EE/E Bonds are going to be fixed-rate bonds starting on May 1, instead of variable rate as they have been for as long as I can remember. EE/E bonds have been great for those saving for college and the earnings are exempt from State and local taxes. They’re one of the popular safe methods of investing and they’re going to lose one of their great advantages, varying rates in a period of changing interest rates…

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