Guest blog: Saving the Savings Bond: The “SAVINGS Act” in 2013
Savings bonds have an interesting history. First introduced in 1935, they were designed to “appeal primarily to individuals with small amounts to invest” and used as a way to expand participation in government financing. Their conceptual predecessor was the war bond, which, in various forms, has been available in the US as far back as the American Revolution. Although war bonds come and go, savings bonds have been offered to the public continuously since their inception, and tax-time savings bonds, savings bonds you can purchase directly on your tax form, have been available since 2009. By using IRS Form 8888, while preparing her taxes, a taxpayer could choose to “impulse save,” or set aside a part of her refund to purchase a U.S. Savings Bond, effectively pre-committing to save the money before she actually receives it.
It is no secret to the VITA community that tax time is an opportune moment for families to think about investing in their own futures. Every year, $300 billion in refunds is returned to American taxpayers. Approximately $115 billion of that goes to low-income individuals and families, with the average refund amounting to $1,680. Tax-time savings bonds, first piloted and tested by the Doorways to Dreams Fund and VITA sites in 2007, offer the much-needed infrastructure for these families to set aside some of that return for their futures. For many low- and moderate-income Americans, there exist few other safe, accessible and universal investment and savings options. So far, the market has not brought high-quality savings products to low- and moderate-income consumers. A typical savings account has an interest rate of .10%, a minimum deposit of $100 and requires a clean banking history. Certificate of Deposits (CDs), slightly longer-term vehicles, are no better, with typical deposit requirements of $500, heavy withdrawal penalties, and an average 1-year interest rate of just .23%. The Series I Savings Bond, in contrast, offers an inflation-protected rate of 1.18%, can be purchased with just $50, and is, uniquely, giftable, meaning a person can buy one and put it in a loved one’s name. It is no wonder, then, that tax-time savings bonds continue to grow in popularity without any national marketing efforts by the Treasury Department. To date, over 100,000 people, the majority of whom have adjusted gross incomes below the national median, have purchased a tax-time savings bonds, collectively saving over $60 million.
However, this may be the last year that this invaluable option is available to the public. The tax-time savings policy is protected only through this coming tax season, as it relies on the paper bond program, which was eliminated as a part of cost-cutting efforts in 2011.
There is work being done to preserve this policy. On September 9, Congressman Matt Cartwright (D-PA) sent a “Dear Colleague” letter to his colleagues in the House of Representatives describing his intention to introduce The Save Access to a Valuable Investment Needed to Generate Savings (SAVINGS) Act. The bill would take the important step of preserving the Tax-Time Savings Bond until 2018 in the absence of a universally accessible, giftable tax-time alternative. This bill represents all of the hard work that the VITA community and others have done to make this policy a reality, and it needs our support. The elimination of the tax-time savings bond would be a huge loss to those of us who work on financial security issues, and, more importantly, to the many Americans who use it to invest in themselves and their families’ futures.
Melanie Kwon Duch is an Innovation Strategist at The Doorways to Dreams Fund. She received her first savings bond at age 1.