Even as interest rates approach lows last seen in, oh, 50,000 BC, U.S. savings bonds are still a great deal.

I'm an obsessive fan of savings bonds, particularly Series I, or I-bonds, for short. Since I wrote about them last year, a few aspects of buying and giving them have changed, but the basic message hasn't: if you aren't buying savings bonds, you're missing out on a safe, simple and relatively high-yielding investment, available to anyone with a social security number.

Let's recap briefly what is so great about I-bonds:

  • They pay an interest rate tied to the rate of inflation. You won't lose purchasing power, and if you're concerned about high inflation in the future, I-bonds will protect your savings. Most savings accounts, CDs and other Treasury bonds pay less than the prevailing inflation rate. Right now, for example, I-bonds are paying 2.2% APY, which is more than almost any five-year CD.
  • Each person can buy up to $10,000 per year.
  • You can set up an account in minutes and start buying I-bonds online at TreasuryDirect.gov.
  • You can cash them in after one year or hold them for up to 30 years. (There's a small penalty for redeeming I-bonds before five years.)
  • I-bonds are tax-deferred and can be used for a child's college education tax-free.

The way I always sum it up is: nobody regrets buying I-bonds.

The Gift of Aaargh
The big change in bonds since last year: they got rid of paper savings bonds. If you're buying bonds for yourself, no big deal. Buying online is easy - all you miss out on is the cool pictures of Einstein and Chief Joseph and Helen Keller.
If you want to give a savings bond as a gift, however, the process is about to get a little awkward, because the recipient of the gift has to have their own Treasury Direct (TD) account. For example, say I want to give my niece a $25 I-bond. I can buy the bond right away and keep it in the "Gift Box" section of my TD account. To transfer it to my niece, however, I have to:

  • Call or email my brother and tell him to open a TD account for himself, then a subaccount for his daughter (oh, and another subaccount for his son, if I want to give him a bond, too).
  • Have him give me the kid's TD account number. Yes, it is safe to share your TD account number. No, this is not intuitive.

The Treasury has produced a YouTube video, complete with that reassuring "Welcome to your first day at work"-style voiceover, to explain how to give electronic savings bonds as gifts. Honestly, I would rather call my grandmother and ask her if she has any tech support questions for me.

Instead, I called Jerry Kelly, director of the Treasury's Ready.Save.Grow campaign. His response, in short: Believe me, we know. "There are a lot of things we're looking at to simplify the process," said Kelly. "One of the things we keep in mind for simplicity is PayPal or, for example, iTunes. We want to get there eventually. It's going to take us time."

I asked Kelly whether anyone is using the gifting feature. "It's certainly not as robust as paper was, and we knew that that would happen," he replied.

This isn't good enough for Mel Lindauer, a Forbes columnist, coauthor of "The Bogleheads' Guide to Investing," and a man even more into savings bonds than I am. "The answer is simple," said Lindauer by email. "Bring back paper I-Bonds and give investors an option. Prior to the elimination of paper I-Bonds, investors overwhelmingly chose paper I-Bonds over TD."

Stay Safe out There
Lindauer ticked off a variety of objections to Treasury Direct, most damningly the fact that, unlike your bank's website, TD doesn't promise you're off the hook in the event someone fraudulently cleans out your account.
"There is an element of truth to that," said Kelly, but in over 10 years and hundred of thousands of TD accounts, no customer has lost a dime to fraud. "We have had people who've had problems, but we have not held them accountable for it, because we haven't deemed them to be negligent with their access information." He mentioned the guy who put his Social Security number on the side of his truck. If someone did that with their TD password, "we probably would not have a whole lot of sympathy for them."

And a TD account is not like a checking account: it's designed to be easier to put money in than take it out. In order to steal my I-bonds, you'd not only need access to my password and my email account (TD sends a one-time passcode via email when you log in on a new computer), you'd then have to link my account to new bank account, which would leave an obvious trail.

In short, it would be even more work than convincing my brother to open a TD account for my niece. Please do not take this as a challenge.

To Sum It Up

  • I-bonds are still an awesome, flexible, safe investment.
  • The process for gifting them is too complicated, and no one blames you if you wait until they fix it.
  • Buying them for yourself is a snap.
  • I'm probably about to get a call from my grandmother asking if she can treat computer viruses with ibuprofen.
Related Articles
  1. Investing Basics

    What's a Treasury Note?

    A treasury note is a U.S. government debt security that offers a fixed interest rate and a maturity date that ranges between one and 10 years.
  2. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Agency Bond

    Find out about the iShares Agency Bond exchange-traded fund, and explore detailed analysis of the ETF that tracks U.S. government agency securities.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Bond

    Find out about the Vanguard Intermediate-Term Bond ETF, and delve into detailed analysis of this fund that invests in investment-grade intermediate-term bonds.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Total USD Bond Market

    Learn about the iShares Core Total USD Bond Market ETF and how it contains holdings that have noninvestment grade ratings, unlike many other bond funds.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares 3-7 Year Treasury Bond

    Take a closer look at the iShares 3-7 Year Treasury Bond ETF, which is a BlackRock issue focused on intermediate maturity government bonds.
  7. Economics

    What are the Federal Reserve Chairman's responsibilities?

    Learn about the duties and responsibilities of the chairman of the Federal Reserve Board, including testifying before Congress and as chair of the FOMC.
  8. Bonds & Fixed Income

    Brave Enough to Invest in Greek Bonds? Here's How

    Learn how an individual investor can invest in Greek government bonds, along with an overview of the substantial risks and potential profit.
  9. Economics

    China Looking to Deleverage its Existing Debt

    Learn about a possible debt bubble developing in China, and how the Chinese government may be selling assets to deleverage some of this debt.
  10. Mutual Funds & ETFs

    The Top 4 ETFs For Investing in US Government Bonds

    Discover the top four ETFs that invest in U.S. government bonds with maturities ranging from zero to 25 years, including nominal and inflation-protected bonds.
RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  3. Series I Bond

    A non-marketable, interest-bearing U.S. government savings bond ...
  4. Safe Haven

    An investment that is expected to retain its value or even increase ...
  5. Bond Resolution

    1. A document used with government bonds, especially general ...
  6. Fully Taxable Equivalent Yield

    The yield on a municipal bond, when the effect of reduced taxes ...
RELATED FAQS
  1. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  2. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
  3. How stable are municipal bonds?

    Stability is relative in the municipal bond market. Municipal bonds tend to be safer than many other types of investments, ... Read Full Answer >>
  4. What does it signify if the term structure of an interest rate's curve is positive?

    When the term structure of interest rates is positive, it is a signal to economists the short-term yields on similar bonds ... Read Full Answer >>
  5. What do cities do with the funds generated from municipal bonds?

    Funds generated from the sale of municipal bonds may go to provide for unspecified, general government financial needs, or ... Read Full Answer >>
  6. What are the main risks to the economy of a country that has implemented a policy ...

    The main risk to the economy of a country that has implemented a policy of austerity is the potential for a self-reinforcing, ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!