Patriotism, loving your country, saving for your future and helping the United States government were some of the common reasons given to Americans to purchase savings bonds. In today’s world, people just don’t care anymore.
The interest rate has been artificially suppressed for many years due to Federal Reserve monetary policy. In order to spur the economy to make consumers borrow more and make financial institutions lend, the central bank has imposed record-low interest rates – Zero Interest Rate Policy (ZIRP) – that have done more harm than good.
Retirees, savers, investors and fiscally prudent Americans – as well as residents of other nations – have been dealt considerable financial blows over the past several years. As they deposit their money into the savings account, they are given pennies a year and the value of their holdings deteriorates over time because of inflation.
In Europe, it can now actually cost money to deposit your cash for safe keeping in the hopes of earning interest. The European Central Bank (ECB) implemented an experimental negative interest rate that has been tried before in Sweden and Denmark to encourage lending, borrowing and spending. Let’s just say the two countries immediately reversed their policies.
Over in the United States, the low interest rates have brought about victims and soon-to-be victims. According to CNN Money, U.S. savings bonds are on the verge of extinction as sales of the financial instrument have fallen to 400,000 last year from 40.6 million in 2000. What were once gifts to graduates, new couples and birthday celebrators have now been viewed upon negatively because of its poor interest rate.
The fixed-rate EE bond offers a 0.5 percent interest rate for 20 years, while bonds issued last year provided only 0.1 percent interest. Financial experts, who were once the promoters of the investment hub, say investors should now look at buying a stock or researching other saving options.
It has been reported that 48 million savings bonds are just lying around the country.
SavingsBond.com is now urging Americans to cash in their savings bonds to pay for expensive items rather than racking up unaffordable credit card bills. The website presents the case that it’s better to cash in low-interest bonds than paying high-interest credit card bills that could hinder your future.
Researchers have noted that Internet has also contributed to the downfall of savings bonds. Instead of acquiring a nice, genuine and respectable paper savings bond, savers now have to purchase them online at TreasuryDirect rather than over the counter. Reports suggest that the U.S. government does not have any intentions of resuscitating the paper savings bonds.
When compared to a few decades ago, investors have a variety of options to earn income on their deposits nowadays. For the average, novice to intermediate investor, they can purchase a mutual fund, open up an online high-interest savings account or acquire stocks at a reasonable cost through your local financial institution’s website.
The moral of the story, however, is that the inflation tax imposed on millions of Americans because of the Fed’s destructive monetary policy is the real danger to the average person’s wealth. If the central bank maintained a sound monetary policy that utilized market interest rates then the country wouldn’t be in the position it’s in.
Here is what Ludwig von Mises wrote in 1942:
“Popular education is absolutely essential. It is clear that the efforts of the U.S. government to collect the means necessary for the conduct of the war by taxation and by sale of government bonds represent sound measures for heading off inflation. Everybody should be made to understand that the burden of high taxes and of making personal loans to the government are minor evils compared to the disastrous and inexorable consequences of inflation. Not only for the sake of the national welfare, but for the sake of your own interests – whether you are rich or poor, employer or wage earner – you should do your best to arrest the further progress of inflation.”