Wednesday, July 16, 2014

The Disappointment of US Savings Bonds

I recently got a nice surprise from the US government.  It all started way back in 1995 when I entered active duty as a US Army officer.  I designated a payroll allotment to run for a few months that would automatically purchase some US Savings Bonds directly from the US Treasury.  I figured this would be a smart move.  It was actually one of the dumbest moves I've ever made.

In the years after I left active duty I allowed the bonds to remain in the custody of DOD's accounting system.  My only concern was getting them back in the event of hyperinflation so I could convert them to cash before they became worthless.  Uncle Sam took care of that problem this year by deciding he would no longer hold service members' allotted Savings Bonds in trust.  The Defense Department sent me my Series EE Savings Bonds and I finally got to hold them in my hands.  They looked magnificent.  I then dug up some other EE Savings Bonds I had received as compensation for participating in a few online studies.  I had not previously considered any of these bonds to be part of my portfolio, but that was an oversight I shall never make again.  I did not want to hang on to any of these bonds for very long now that they were finally in my custody.  I had sold my more liquid fixed income holdings long ago in anticipation of hyperinflation.  I took my EE bonds down to the bank branch where I have a checking account and asked the bankers to redeem my bonds and deposit the proceeds.  They were only too happy to oblige.

The redemption was straightforward.  I provided personal identification and signed each bond on the back before handing them to the bank teller.  She tallied them up with accrued interest, transferred the total to my checking account, and printed my receipt.  I compared the receipt to the calculations I had performed at Treasury Direct's Savings Bond Calculator before I went to the bank.  The amounts were correct but still disappointingly low.  I received the full face value of the $1000 face value EE bonds I bought in the 1990s plus miniscule interest.  The $100 EE bonds I had received more recently as online compensation were only partially redeemed, as I had not held them long enough to receive the full accruals.

The tiny gains my EE bonds eeked out ignore the opportunity cost of not investing in the stock market during the 1990s.  The flip side is that the '90s tech-driven boom and crash destroyed plenty of wealth.  It is thus difficult to determine whether I would have been better off just not making those allotments from my Army pay and keeping the cash in ordinary savings accounts.  Interest on savings used to be pretty decent until the Bernanke Fed started blowing bubbles.

Feel free to peruse TreasuryDirect at your leisure.  It is full of programs for the low-information investor that look like decent savings deals until you compare them to the whole wide world of investing.  Americans can open a myRA account in TreasuryDirect.  Read my blog article about how myRA is little more than a practice tool for beginning investors.  Americans can also buy I-bonds on that Treasury site.  I'm pretty sure the government's efforts to reset that inflation-protected bond's value will break down quickly during hyperinflation.  I won't revisit TreasuryDirect's cute ideas until after hyperinflation ends in the US.  Lame bond returns just aren't for me.