My Love Affair with Savings Bonds

Today my 5-year T-Bill that I had forgotten about matured. As I do every payday, I checked my bank account to make sure my paycheck made it to where it's supposed to go (yeah, ok, so I don't trust anyone, including the big no-name corporation I work for who is trying to outsource my job to India every time I'm not looking).

I was very puzzled over the extra money for a few seconds until I remembered the day, 5 years ago, to celebrate finally paying off my $20k of debt that I had accumulated, I splurged and bought myself a T-Bill with the portion of my paycheck that I had been throwing at my credit cards.

It reminded me of a MySpace blog I wrote in 2006 on a slow day at work. Here it is.....

It's a Beautiful Thing

Category: Jobs, Work, Careers

Since I don't want the top blog on my blog list to be such clear evidence that I have a tendency to freak out once in a while, I wanted to post a blog - any blog - to bump that last one out of the spotlight. And since it's rainy and sucky out, I can't write about sunshine and daisies, so the next best topic I can come up with is something helpful.

So here's my something helpful. I hope it helps....

(Try and stay awake. I know you think this is going to be boring, but try anyway).

The Beauty of Savings Bonds

Savings bonds are a beautiful thing. Really. Poor savings bonds have held the title of mind-numbingly dull baby-gifts for as long as I can remember, but what most people don't realize is that they're baby-gifts for a reason. Sure, they're cheap, they take a looong time to mature, and they fit very nicely in the junk drawer, ready to be forgotten until you're packing up your house to move somewhere else. But what makes them so boring also makes them handy.

The great thing about savings bonds is they're not liquid so you have to let them mature (for the most part), they tend to pile up, so before you know it you're sitting on a pretty pile-o-cash (eventually), and...yeah, well, they're cheap.

They make ideal gifts. Check it out:

What's the best wedding gift you can give? Something that says "I have faith in your marriage. I truly believe that you will be together for at least the next 30 years." Voila! Savings bond! You buy one with both people's name on it and you are declaring your faith in the couple's marriage - they'll have to stay together for at least 30 years if they want to share the full value of the bond. Of course, it has a nice little loophole too: To get two people's names on a savings bond, you have to have an owner and a beneficiary. So the person that you're actually close to in the wedding is the owner. If there's a break-up, the beneficiary can be legally shit outta luck (hehe).

Heading to your 5th baby shower of the year? Had enough of spending your hard earned money to outfit someone else's nursery? Savings bond! You hand over a savings bond that has $50 printed real big right on the front....but you only paid $25! Woohoo!

Ok, so savings bonds make great gifts, but guess what - they are great for your own retirement too. On http://www.treasurydirect.gov/ you can have as little as $25 periodically taken right out of your bank account to buy one of these handy little puppies. AND, having those $25 automatically coming out of your account each month (hint, hint - have it taken out ON PAYDAY), you actually forget you ever had it. Look:

If you put away $25 per month, every month for the next 30 years, you will have saved $9000. Eh....not much. But if you had those $25 going toward a savings bond each month, each of those bonds will double its value after 30 years. Assuming you're about 30 years old when you start, that means that between the ages of 60 and 90, you'll have a continuous (albeit small) cash flow amounting to $18,000.

Yeah, ok, that's essentially nothing ($1.67 a day). But when you're retired and your entire social security check (if you even get one) is going towards the rent, then your savings bonds will at least buy you a cup of coffee and a donut every day between 60 and 90 years of age. And really - do you want to retire without enough funds for a cup of coffee every day? If you had simply stuffed those $25 per month in your mattress, you'd only have $0.83 a day every day for 30 years.

HINT: You don't actually have to cash the bond in after 30 years. You're allowed to hang onto them for up to 60 years, allowing them to quadruple in value. But that's no fun...

Sure, it's not much. But with social security dwindling and corporations throwing pension plans out the window, every little bit counts. After all, you don't have to only buy $25 bonds per month. You could conceivably buy $100 bonds per month. Or more. It's all up to you and how much you expect to accumulate in your 401k....if you have one.

The biggest shining beauty of savings bonds? TAXES!!!!!

First of all, you don't pay taxes at all until you cash in your savings bonds. That means that the interest that is accumulating in your bond (which is what makes the bond double its value over 30 years) does not get taxed until you cash out the bond. Is this good because you're just delaying paying those taxes? Well, yes, but it also saves you money. If you were paying taxes on the interest as it accumulates, it would take longer than 30 years for the bond to double its value. Why? Because the more money accumulated in the bond, the more interest you get paid. If you're paying taxes as you go, then there is less money to pay interest on - hence it would take longer to double the value of the bond.

Secondly, savings bonds are exempt from state and local income taxes. That means that even when you do redeem your bond, the state and local government CANNOT tax you on that income (federal only taxes you on the interest accrued).

--By the way, if you use savings bonds to save for your child's education, NONE OF IT IS TAXABLE - NOT EVEN FROM THE FEDERAL GOVERNMENT!

--If you use bonds to supplement your retirement, since you'll be redeeming them at retirement age, you'll most likely be taxed at your lower retirement age income tax rate.

--You can transfer your partially matured bonds to your child's name. If you cash them out under your child's name before your child becomes an adult, the interest will be taxed under the child's LOWER tax rate.

So, you see, savings bonds are a beautiful thing. I love them - they are a foundation in my repertoire of gifts, and I currently am sitting on several thousand dollar's worth of bonds just waiting for me to retire. I absolutely have money automatically taken out of my bank account just to buy some of these beauties every month.

PS - Can anyone tell it was a sloooow day at work today?