Investing 
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Basics of Treasury Bonds & Securities Explained

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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 Investing 
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Converting Series I Paper Bonds into Electronic Bonds

Savings BondsSince I couldn’t buy electronic Series I bonds in time because of user error, I went to the local bank and purchased paper Series I bonds instead. The next step is to convert the paper bonds into electronic bonds and the Treasury Department makes that pretty easy.

Why Convert?

I’m converting because I don’t want to lose the certificate. If you lose the bond, you can always replace it by filling out Form PDF 1048 Claim For Lost, Stolen or Destroyed United States Savings Bonds but if the conversion process is easy, why risk it?

Another good reason to convert is that you’re able to redeem the bonds in any increment, you aren’t restricted to the increments you converted. The only rule is that you must redeem at least $25 and what’s left can’t be less than $25, which shouldn’t be an issue.

Lastly, after thirty years, the bonds are automatically redeemed. There’s no chance you’ll find the bonds in the attic somewhere in sixty years, after missing out on thirty years of interest. (there are more reasons and I just realized they have them listed on the SmartExchange site, so check them out there if you’re not convinced)

How To Convert

The system TreasuryDirect uses is called SmartExchange. Anyone with a TreasuryDirect account can convert paper bond certificates into electronic bonds (if you don’t have a TreasuryDirect account, open one… it’s easy but it takes a week or two to get everything all set up).

The next step is to log into your account and use their Contact feature to notify TreasuryDirect that you’d like to convert your bonds. Then, after a few days you’ll receive this email confirmation:

Hello.

You can now create your own conversion linked account by following these steps:

* Access your TreasuryDirect account.
* Click the ManageDirectsm tab.
* Select the “Establish a Conversion Account” option from the Manage My Linked Accounts menu. The Establish a Conversion Account page will display. Review the information.
* If you wish to create a Conversion Linked Account, click the Create Account button

The next few instructions are just as the email describes except instead of looking for a “Establish a Conversion Account” you’re actually looking for “Establish a Conversion Linked Account.” On that next page, click on Create Account and with that, you have created a Conversion Linked Account! (* Welcome to your new Conversion Linked Account! You may begin converting your paper bonds at any time. Yay!)

The process from here is simple and mechanical with detailed instructions available on the TreasuryDirect site in the ManageDirect page. You will essentially create a list of bonds, print out a manifest, and mail in the bonds (there’s no point in me republishing the actual details, they give step by step instructions). The process takes about three weeks once they get the bonds and you can track it by viewing your electronic manifest through ManageDirect. Use that to track the status of your bonds.

As an aside, having logged into TreasuryDirect about a million times in the last few days, I have to say the security access card is a pain in the rear. Luckily if you fail too (3?) many times (I kept forgetting to pick a serial number), they report that you failed but don’t actually lock you out. You can just keep trying, great security!

(Image by joan_thewlis)


 Investing 
16
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Why Lower The Savings Bond Limit to $5,000?

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%!


 Investing 
3
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Introduction to I-Bonds and Treasury Direct

I-Bonds have received a ton of press lately, especially from personal finance bloggers, and they appear to be a better alternative for your savings than certificates of deposit (CDs). CDs have a fixed rate (usually tied to its length) and I-Bonds have a fixed and inflation-adjusted rate (independent of the length you hold it). I-Bond income is exempt from state and local taxes and even exempt from Federal taxes if you spend the income on eligible educational expenses. As a treat, you can now purchase I-Bonds via Treasury Direct (an online resource) and never deal with a paper certificate (and enjoy a lot of new flexibilities).

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 Government 
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EE/E Bonds Set to Change to Fixed Rate

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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