Savings Bonds have offered salvation for conservative investors.
Interest rates are considerably higher than those provided by bank CDs
and money market funds. (Main story: An
American tradition too unwieldy?)
But the Treasury Department has made big changes,
and more are coming. Among recent and planned revisions:
•Lower rates. In May, Treasury reduced
the fixed rate on the inflation-adjusted I Bond to 1.1%, down from 2% a
year earlier and the lowest since the I Bond was launched in 1998. I
Bonds are composed of two rates: a fixed rate that remains the same for
the life of the bond and an inflation rate that's adjusted every six
months.
Right now, investors are getting a healthy 4.66%
rate because the inflation-adjusted component rose during the first half
of the year. But if the inflation rate falls, the interest rate on I
Bonds will plummet.
•Longer holding period. In January,
Treasury increased the minimum holding period for EE and I Bonds to one
year from six months. It said it made the change to discourage short-term
investors from buying Savings Bonds.
•Scrapping HH Bonds. After slashing
interest rates on HH Bonds to 1.5% from 4%, Treasury announced it will
discontinue Series HH Bonds in mid-2004. Investors can't buy HH Bonds,
but they can exchange eligible EE Bonds for them. The strategy enables
bond owners to avoid paying taxes on maturing EE Bonds for up to 20
years.
Treasury will continue to honor existing HH Bonds
after it stops issuing new ones.
•Eliminating credit card sales. After
Dec. 30, investors will no longer be able to use credit cards to buy
Savings Bonds over the Internet. Government officials say the program, a
popular way for savers to earn frequent-flier miles, is too costly to
continue. Investors who want to buy Savings Bonds electronically will
have to arrange for the money to be withdrawn from a bank account.
•Moving online. By the end of 2005,
Treasury plans to eliminate paper bond certificates. Like Treasury bills,
notes and bonds, Savings Bonds will be stored electronically.
Now, investors have a choice: They can buy both
Series EE and I Bonds online or in paper form. Sometime next year,
Treasury will permit owners of paper certificates to swap them for
electronic bonds. Even after the program is entirely electronic, Treasury
will continue to honor paper bonds until they mature.
