Two Ways You Can Lose Money Buying Savings Bonds

Two Very Real Ways Investors Can Lose Money Buying Savings Bonds

By John H. Robinson, 12-1-2022

My greatest concern in writing this article is that people may perceive the title to be “clickbait.” I assure you it is not.  There are at least two very real ways in which investors may lose the money they invest through the TreasuryDirect.gov website.  The first way is by transferring more than the $10,000 minimum per person purchase limit for Savings Bonds.  The second is by failing to document your savings bond ownership in your estate plan.

If You Over-Contribute, Your Money Disappears

This is no joke. In April 2022, I established a Treasury Direct account in my name and transferred $30,000 from my bank account with the intent to purchase $10,000 for me and each of my two minor children.  Upon completing the transfer, I received an email from TreasuryDirect informing me that I exceeded the $10,000 per person purchase limit and that the excess contribution would be returned to me within 13 weeks. I then learned that I needed to purchase the bonds for each child in my account one at a time. I did this and transferred an additional $20,000 to my Treasury Direct account. 

What is disturbing about this is that when I log into my TreasuryDirect account, there is no record of my $20,000 over-contribution.  It does not appear in my account or in the transfer history.  To make matters worse, there is virtually nowhere to turn for customer support.  Treasury Direct has suspended email support and phone support often exceeds two-hour wait times. Even when you do get through to a support person, definitive answers are in short supply. I chronicled this experience in greater detail in an article I recently penned for Hawaii Reporter. It has now been 8 months and I have no idea when or if the U.S. Treasury will ever return my money.  It seems preposterous that the U.S. government can keep consumers' money with no accounting, no timetable for returning it, and nowhere to turn for support, yet that is precisely the predicament I (and probably hundreds or thousands of other consumers) am in.  I cannot help but wonder if the Internal Revenue Service will eventually allow me to deduct the $20,000 as an investment loss.

How Will Anyone Know You Have a Treasury Direct Account?

Historically, millions of dollars of paper savings bonds have gone unclaimed far beyond their 30- year maturity dates.  It is easy to understand how certificates purchased for young children might get lost or discarded over the decades.  To address this problem, beginning in 2012, the Treasury stopped issuing savings bonds in paper form except for taxpayers who choose to allocate a portion of their tax refunds toward the purchase of savings bonds.  Although the logic of why the Treasury continued to issue paper certificates for tax refund purchases is unclear, what is more baffling is how electronic purchases of I-bonds solves the unclaimed savings bond problem. 

There is absolutely no paper statement reporting for Treasury Direct accounts and, since the interest on savings bonds accrues tax-deferred, there are no 1099s issued that might remind a bondholder or family member of the account’s existence. Even when bonds pass their 30-year maturity, there is no messaging that the Treasury sends out to the owners.

As a practical matter, the only way in which a savings bond owner can notify heirs/successors/beneficiaries of the existence of a TreasuryDirect account(s) is by directly informing those people and/or by leaving specific written information about the account in a place where relevant parties are likely to find it.  It is easy to envision aging treasury direct account holders forgetting about accounts established for themselves or for children or grandchildren a decade or more earlier. 

Far from solving the problem of unclaimed savings bonds, the U.S. Treasury’s “online only” policy seems destined to exacerbate the problem.  With paper certificates, there was at least the possibility that a family member sorting through files might stumble upon long-stashed savings bonds.  With Treasury Direct, no one will find the bonds unless it occurs to someone to enquire. 

Naming a Beneficiary may help avoid probate, but it will not Alert Beneficiaries of the Existence of a Treasury Direct Account

At Financial Planning Hawaii and Fee-Only Planning Hawaii, we encourage clients to add beneficiaries to all account registrations, including savings bonds.  However, it is important to know that while this important step will enable beneficiaries to avoid probate, it does not mean the Treasury will contact the beneficiaries upon the death of the account holder.  In fact, the Treasury Department will not only not contact the beneficiary, it is not even notified that the account holder has passed.

In sum, this article is intended to raise awareness of serious shortcomings of the Treasury Direct program, particularly as it relates to the purchase of savings bonds.  These are two very real ways in which investors can lose the money they thought was guaranteed by the “full faith and credit” of the U.S. Government.  Caveat Emptor.

John H. Robinsons (“J.R.”) is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. 

DISCLOSURES

Securities offered through J.W. Cole Financial, Inc. (JWC) member FINRA/SIPC. Advisory services offered through Financial Planning Hawaii and J.W. Cole Advisors, Inc. (JWCA). Financial Planning Hawaii and JWC/JWCA are unaffiliated entities 

Fee-only financial planning services are provided through Financial Planning Hawaii, Inc. DBA Fee-Only Planning Hawaii, a separate state of Hawaii Registered Investment Advisory firm. Financial Planning Hawaii does not take custody of client assets nor do its advisers take discretionary authority over client accounts.

The information contained herein is general in nature. Neither Financial Planning Hawaii nor J.W. Cole provides client-specific tax or legal advice. All readers should consult with their tax and/or legal advisors for such guidance in advance of making investment or financial planning decisions with tax or legal implications