Treasury offers a memory lane trip as savings bonds go electronic

 

Where will Mr. Ed stash his cash now?

As the Treasury Department prepares to pull the plug on the paper version of U.S. savings bonds at the end of the year, it's touting the 76-year history of the populist government investment that helped win World War II and jump-start the bank accounts of millions of youngsters.

Hollywood helped sell many of those bonds, with stars all along the entertainment evolutionary scale making public service pitches -- from Bing Crosby and John Wayne to Lassie and Mr. Ed, the 1960s TV talking horse.

"As we transition our savings bond program online -- a move that will produce significant taxpayer savings -- we wanted to step back and remember how savings bonds came to symbolize the events, people and places that shaped our nation through good times and difficult periods over the past 76 years," U.S. Treasurer Rosie Rios said.

Saturday is the last day to purchase paper savings bonds. After that, they'll be available only electronically, saving the government $120 million over the next five years.

But to remind people that the bonds are not going away -- just going digital -- the Treasury Department has created an interactive online timeline with ads and images dating to the program's founding under President Franklin D. Roosevelt in 1935 as a low-priced government security.

The first $25 bonds sold for $18.75. During World War II, the bonds helped finance the U.S. military, and were offered in small denominations ranging from 10 cents to $5 that were called war stamps. Through 2010, nearly $595 billion worth of savings bonds have been redeemed in the program's history.

The Treasury site features vintage posters from World War II and videos, including TV ads featuring George Reeves as Superman, and Timmy and his collie from "Lassie" urging Americans to buy savings bonds.

"The first thing you know, you'll have enough for a savings bond, just like Dad buys at the payroll savings at work," Reeves tells a group of smiling children in one of the grainy, black-and-white videos. "And from then on, the sky is the limit. Take it from Superman."

For more of the ads, the National Archives has a video montage (above) featuring pitches from John Wayne, the Lone Ranger, Bugs Bunny and Bullwinkle J. Moose.

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-- Jim Puzzanghera in Washington 

Savings rate falls as spending outpaces income gains

Are Americans returning to their profligate spending ways?

Some may be asking that question after the latest government report showed consumer spending in September rose by a surprisingly robust 0.6%, even as personal incomes barely grew over the month. And adjusting for inflation, after-tax income in September actually fell by 0.1%, the Commerce Department reported Friday.

Put all that together and you get a sharp drop in the saving rate last month, to 3.6%. That’s the lowest level since 2007 and a drop from about 5% to 6% during most of the last two years.

Scott  Hoyt, who studies consumer spending for Moody’s Analytics, says it’s possible that the September consumption number may have been inflated by a burst of expenditures for repairs and other things after Hurricane Irene in late August. Yet other data suggest that people are spending more as lenders have loosened up a bit on credit and as households, which had put off buying new cars and other goods, feel a little better about where the economy is headed.    

In fact, the University of Michigan’s latest consumer sentiment index, reported Friday, showed confidence improving by 1.5 points in October to 60.9. That reversed a preliminary reading that saw a drop of nearly 2 points from September.

Confidence should get a further boost with the recent rally on Wall Street and retreat in gas prices, and this week's report indicating third-quarter economic output accelerating to an annual rate of 2.5%, almost double the second quarter.

Even so, with the housing market still depressed and job growth so weak that it's not keeping up with new workers coming into the job market, it's hard to see how the pickup in consumer spending can be sustained. That is, unless households reach deeper into their savings or start taking on more debt.

-- Don Lee 

Americans are saving more in 401(k) retirement plans

 
If there's a bright side to the troubled economy and ever-rising medical costs, perhaps this is it: A new survey shows American workers are saving more in their 401(k)s to fortify themselves against the financial gloom they see around them.

Over the last year, 41% of people with 401(k) retirement accounts have boosted their contribution rates (up from 31% last year), while 11% expect to stash away the maximum $16,500 allowed under federal tax law (it was 8% a year ago), according to an annual survey by Mercer, a unit of Marsh & McLennan Cos.

The change is driven largely by deepening concerns about the economy.

Of those surveyed, 45% fear losing their jobs (up from 36% a year ago) while 44% expect to delay retirement (it was 35% last year). And the seemingly unstoppable rise in retiree health costs is registering with American workers: 36% said saving for healthcare is a major goal, up from 24% a year earlier.

"Participants seem to be saying that they can no longer rely on market performance, their employer or the government to build their retirement savings for them, but must take control of every aspect they can in order to provide for a successful retirement," said Suzanne Nolan, marketing and communications director for Mercer’s U.S. outsourcing business.

It's positive that people are taking greater control of their finances -- even if for depressing reasons -- but it's only part of the story.

The survey depicts Americans who already participate in 401(k) plans -- i.e., a self-selected group that tends to be financially aware and motivated. And to contribute to a 401(k), you have to have a job in the first place.

The bigger risk is for the millions of Americans who have little retirement savings, or who have lost their jobs and are raiding their nest eggs to buy food or pay the mortgage.

For them, their retirement hopes may rest on the ability of the economy to turn around.

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Smart money is a rare positive for the stock market 

-- Walter Hamilton

Photo: Golf course at Homestead Resort in Midway, Utah.

Google tells the tale of individual investors and stocks

Individual investors have grown disenchanted with stocks. Want proof? Google it.

To gauge small-investor sentiment toward the market, a Wall Street researcher tracked how often people perform searches for various investment-related words.

Nicholas Colas, chief market strategist at ConvergEx Group in New York, used Google Trends, a portion of the popular website that measures search patterns over time.

Terms such as “investing” and “stock investing,” hot topics among small investors during the dot-com craze a decade ago,  have fallen sharply in the last seven years, according to Colas. Even “bonds” has fallen from grace since 2004.

And the stock-market rally over the last two years has done surprisingly little to stoke interest -- perhaps because people are still nursing their wounds and remain wary of the economy.

“You’d be hard-pressed to point out any incremental interest in 'investing' despite the move higher for equities,” Colas wrote in a report to clients. “Market rallies, even those that go on for years, are not enough to engage them.”

The most popular investment-related term? Not surprising, it’s “saving,” with 6.1 million searches a month. That easily tops 823,000 for “investing” and a mere 60,500 for “stock investing.”

The rally in emerging markets two years ago produced a dash of excitement for “foreign stock.” But it didn’t last long and now generates only 12,100 searches a month.

“Bankruptcy” tied for the second-most popular term that Colas searched. But after hitting a peak in 2009, searches for “bankruptcy” have declined this year from their 2010 level.

That’s “the most heartening trend, both from a human as well as financial standpoint,” Colas wrote.

-- Walter Hamilton

A comfortable retirement? Be a '10-Timer'

Want enough money to carry you through your golden years? Then save at least 10 times your annual salary by retirement.

That's the allegedly "simple" goal that a new study exhorts Americans to pursue.

"Too few Americans are saving sufficiently to provide for themselves in old age," says the study by Lincoln Financial Group. "What is needed is a simple way to encourage and empower individuals to save."

There is a hitch: Only 11% of the retirees surveyed succeeded in becoming so-called 10-Timers.

Nevertheless, says the study, the rest of us can learn something from those fortunate enough to hit the mark.

To calculate where you stand, tally your total savings -– checking accounts, mutual funds, 401(k)s, etc. -– minus all non-mortgage debt. (Real estate is excluded in this equation.) Then, divide your net savings by your annual income.

(The figures all are pre-tax. So use your gross income and the current amount in tax-deferred retirement accounts.)

It's worth noting that there's nothing scientific about saving 10 times your income. It's just an easy-to-understand figure and 10-Timers report being successfully retired, according to a Lincoln Financial spokeswoman.

10-Timers share a few obvious savings traits, including contributing to workplace retirement plans and following clear investment strategies, such as relying on index funds.

Most interesting, almost three-quarters made the most of "power-savings years" when they had extra money o salt away. And it's especially helpful to do that early in your career, according to the study.

While power-saving between ages 40 and 50 was twice as common among 10-Timers, it was three times as common from 30 to 40.

"Steadily saving a modest amount each year is important, but is probably not enough by itself" to achieve 10-Timer status, according to the study.

That's dispiriting for anyone hoping that slow and steady will win the race. But at least after running these numbers you'll have an idea of how far behind you are.

–- Walter Hamilton

Consumer Confidential: Spending up, saving down. Pizza aplenty. Ticketmaster settles.

Here's your meet-me-at-the-fair Monday roundup of consumer news from around the Web:

-- No surprise here: As the economy recovers, we're earning more, spending more and saving less. Personal income rose 0.4% in December, following a 0.4% increase in November, according to the Commerce Department. Spending by individuals gained 0.7%, compared with a revised 0.3% increase the prior month. Meanwhile, Americans saved $614.1 billion in December, compared with $634.4 billion the prior month. And personal savings as a percentage of disposable income nudged down to 5.3% from 5.5% in November. Economists expect disposable income to increase further in January, boosted by a 2% payroll tax cut that started at the beginning of the year.

-- One thing we'll be spending our dough on is pizza. Super Bowl Sunday is one of the five big pizza days of the year, with the others being Halloween, the day before Thanksgiving, New Year's Eve and New Year's Day, according to the trade magazine Pizza Today (yes, there is such a critter). For example, the Associated Press reports that the Papa John's chain expects to sell a million pizzas when the Steelers meet the Packers on Feb. 6, making it their biggest day of the year. In preparation, the 3,200-restaurant chain will be shipping more than 2 million pounds of cheese through its 10 distribution centers along with 350,000 pounds of pepperoni. I'll be good for a slice or three.

-- If you bought a ticket to an event over the last decade (Super Bowl or otherwise), you may be due some change. Ticketmaster has agreed to settle a class-action lawsuit that charged that its order-processing fee was a "profit component" unrelated to actual expenses and its UPS delivery option included an artificial markup. The suit was originally filed in Los Angeles in 2003. It was broadened to a class action late last year to include anyone who purchased tickets through Ticketmaster.com from October 1999 through May 2010. Consumers who qualify as plaintiffs will be entitled to receive a cash payment from Ticketmaster or discounts off future ticket purchases. Ticketmaster said it settled the suit to make it go away, not because it was admitting any wrongdoing. Whatever, dudes.

-- David Lazarus

Photo: Consumers might not be saving much dough, but pizza makers are rolling in it. Credit: Ed Suba Jr. / Associated Press

 

Treasury hacks interest rates on new savings bonds

The U.S. Treasury has once again opted to lower the returns on savings bonds, as interest rates in general have plunged over the last six months.

For only the second time in the 12-year history of inflation-adjusted savings bonds -- known as Series I bonds -- the guaranteed fixed rate on newly issued securities was cut to zero.

The bonds still will earn a return pegged to inflation, but there won’t be any extra pop from a guaranteed return.

The government resets rates on newly issued savings bonds every May 1 and Nov. 1. Series I bonds earn the combined total of their fixed annual rate, which is set for the 30-year life of the bonds, and the inflation rate as measured by the Consumer Price Index. The inflation adjustment is recalculated every six months for new and outstanding bonds.

In a statement Monday, the Treasury said I bonds issued through May 1 would earn an annualized interest rate of 0.74% in their first six months, down from 1.74% on bonds issued in the previous six months. The entire 0.74% return on new bonds would be the inflation adjustment, based on the change in the CPI from March through September.

The fixed rate alone on I bonds had been as high as 3.6% in the early 2000s, but the Treasury has been whittling it down since then. It was 0.20% in the last six months. The last time the fixed rate was zero was in the period of May 1 to Oct. 31, 2008.

Owners of previously issued I bonds can see what their guaranteed fixed rates are in a chart provided on savings-bond-advisor.com. Add 0.74% to the fixed returns to get your new earnings rate.

It isn’t surprising that the Treasury cut the fixed rate on new I bonds to zero, given what happened last week: At an auction of five-year TIPS bonds (Treasury Inflation-Protected Securities) -- securities used by many big investors to hedge against inflation -- buyers accepted a negative interest rate for the first time ever.

That means they were so eager to get bonds with a guaranteed inflation adjustment that they were willing to take a negative return to start out.

The message there for potential Series I savings bond buyers: If you think higher inflation is coming, the bonds still offer a decent way to hedge against that, because their returns will match the change in the CPI.

The Federal Reserve, which on Wednesday is expected to launch a new program to pump more money into the financial system and the economy, has made clear it would prefer higher inflation to the alternative of potential deflation.

The Treasury on Monday also cut the interest rate on new Series EE savings bonds. Investors buying those bonds in the next six months will lock in a fixed annual rate of 0.60% for life, down from a rate of 1.40% on EE bonds issued in the last six months.

But if you can hold EE bonds for 20 years, the government guarantees that the bonds will double in value at that point. That would equate to an annualized return of 3.50%.

-- Tom Petruno

Photo: The Treasury building in Washington.

Bank of America hacks yields on longer-term CDs

Bank of America Corp. this week slashed interest rates on its longer-term certificates of deposit, a move one rate-tracker says is likely a response to expected declines in fee income under new federal rules limiting overdraft charges.

San Anselmo, Calif.-based Market Rates Insight said it found that BofA hacked yields on its five-year CDs by an average of a half-percentage-point, to 1.75% from 2.25%.

The bank’s three-year CD yield was cut to an average of 1.1% from 1.5%, the firm said.

BofA’s CD yields can vary by state.

Dan Geller, executive vice president of the rate-tracking firm, wrote a report earlier this month predicting that many banks would cut deposit rates to make up for changes in rules governing overdraft fees.

Those changes, ordered by the Federal Reserve effective July 1, give consumers more say in how their bank handles account overdrafts involving debit cards and ATM withdrawals. The net result is expected to be a drop in the lucrative fees banks assess for overdrafts and for automatic overdraft-protection plans.

Some studies have estimated that the banking industry would take a $15-billion annual hit in overdraft-fee income.

“Interest rates on deposits are very likely to decline to make up for some or the entire non-interest income shortfall as a result” of the rule changes, Geller said.

Asked what spurred the CD yield cuts, a BofA spokeswoman said the changes were “reflective of the current rate environment and consistent across our industry.”

CD yields have continued to decline over the last year as the Fed has held its benchmark short-term interest rate near zero. Paltry yields have triggered a massive outflow of cash from CDs across the banking industry, as consumers have had little incentive to lock up their money. But much of that cash has just been parked in bank money market accounts and other short-term accounts that pay even less than CDs.

If they’re looking for cover to justify another round of rate cuts, banks can point to the latest drop in market interest rates on Treasury securities and other bonds. Expectations of slowing economic growth (confirmed by the government’s second-quarter gross domestic product report on Friday) have pulled the two-year T-note yield down to a record low of 0.55% from 0.75% in mid-June.

The five-year T-note yield was at 1.60% on Friday, down from 2.08% in mid-June.

In sum, there is just no good news out there for people trying to earn a decent income on savings they can't afford to lose.

-- Tom Petruno

Photo credit: Peter Foley / EPA

Money in bank CDs falls to four-year low as savers balk

Bank certificates of deposit may be headed for the endangered species list of the financial world -- a casualty of record low interest rates.

There still is $1.06 trillion in what the Federal Reserve classifies as small-denomination CDs, meaning those of $100,000 or less. But as the chart below shows, the small-CD total at banks and thrifts is plummeting at a fast rate, and now is back to 2006 levels.

About $100 billion has flowed out of CDs this year alone, and the runoff has totaled about $400 billion since the end of 2008, according to data compiled by the Fed's St. Louis bank.

The money isn't vanishing, of course. Much of it has stayed at the banks, but has been shifted to basic savings accounts or money market deposit accounts, as I noted in my Times column last weekend.

Understandably, many Americans just don't want to lock up their cash in CDs at current depressed interest rates, so they're keeping a record $5 trillion in liquid accounts that typically pay even less than CDs.

The average money market deposit account pays interest at a 0.41% annualized rate, according to rate-tracker Informa Research Services, which surveys 3,500 banks, thrifts and credit unions weekly.

By contrast, the average one-year CD now yields 0.90%.

Unfortunately for savers, the Fed has kept its benchmark interest rate lower for longer than most people might have expected. The Fed has been holding its rate between zero and 0.25% since the end of 2008.

And many banks have responded to the Fed's rock-bottom rate by continuing to lower CD yields over the last year, even as the economy has improved.

The average one-year CD yield has dropped 0.53 of a point over the last 12 months, from 1.43% in mid-June 2009, according to Informa. The average six-month CD now yields 0.63%, down from 0.82% six months ago and 1.12% a year ago.

So savers who've been faced with rolling over maturing CDs have been offered less and less for their cash. Retirees who rely on CD income know this all too well by now.

Naturally, some banks want your money more than others, so shopping around for CDs makes more sense than ever. "But even the top yields available have been inching lower," says Greg McBride, senior analyst at rate tracker Bankrate.com.

Banks obviously would like to pay as little as possible for money, but there's another factor weighing on CD yields: a lack of loan demand, or at least, a lack of demand from qualified borrowers.

"If you're not lending, why pay up for deposits," says Ray Montague, an analyst at Informa.

The upshot is that, even with CD yields as dismally low as they are, there may be nothing to halt the downward trend -- until the Fed finally starts to tighten credit. And there is no consensus on when that may happen; analysts' estimates of the first Fed rate increase range from later this year to as far off as 2013, depending on the health of the economy and the financial system.

Given that level of uncertainty, McBride thinks savers should stay flexible. One option, if you don't want to stay in a low-yielding savings or money market account: Build a classic "ladder" of CDs maturing in three, six, nine and 12 months, so that you're picking up more yield than in a liquid account but you always have some cash coming available.

Online services such as Bankrate.com list the highest-yielding CDs nationwide. Montague also suggests checking with local credit unions and smaller banks, which he says often pay better than the biggest banks.

Of course, you'll want to stay within federal deposit insurance limits wherever you go.

-- Tom Petruno

Rates fall on inflation-adjusted U.S. savings bonds

Waning inflation, at least as measured by the consumer price index, will cut returns earned by Series I U.S. Savings Bonds for the next six months, the Treasury announced on Monday.

Series I bonds bought between May 1 and Nov. 1 will earn an annualized interest rate of 1.74% in their first six months, down from the 3.36% annualized earnings rate on newly issued bonds in the previous six months.

Series I bonds earn the combined total of their fixed annual rate, which is set for the 30-year life of the bonds, and the inflation rate as measured by the consumer price index. The inflation adjustment is recalculated every six months for new and outstanding bonds.

The fixed rate on new Series I bonds is 0.20%, down from the 0.30% fixed rate on bonds sold in the previous six months. The fixed portion of the return can be whatever the Treasury decides -- and Uncle Sam has become far less generous with that rate over the last few years, reducing I-bonds’ overall appeal. The fixed return on new I-bonds was 1.40% as recently as 2007.

The inflation component will provide an annualized return of 1.54% on new I-bonds in their first six months after issuance, as well as on previously issued bonds as they adjust. Add the 0.20% fixed rate to 1.54% to get the total return of 1.74% on newly issued securities.

Owners of previously issued I-bonds can see their new six-month earnings rates in a chart provided on savings-bond-advisor.com.

The Treasury on Monday also announced the interest rate on newly issued Series EE Savings Bonds, which earn a fixed rate of interest for the life of the security. EE bonds issued in the next six months will earn 1.40% a year, up from the rate of 1.20% on EE bonds issued in the previous six months.

But if you can hold EE bonds for 20 years, the government guarantees that the bonds will double in value at that point. That would equate to an annualized return of 3.50%.

That's less than the 3.68% yield on conventional 10-year Treasury notes as of Monday, but remember that savings bonds allow you to defer federal income taxes on interest earned until the bonds are redeemed.

-- Tom Petruno

Image: The $50 I-bond features the image of Helen Keller. Credit: The Treasury

Personal spending up, but incomes, construction and manufacturing show weakness

Personal spending is on the rise, but weakness in incomes, construction and manufacturing suggests that the economic recovery will continue to be sluggish.

Nominal personal income inched up $11.4 billion, or 0.1%, in January after growing 0.3% in December. Though incomes have risen for the last six months, the increase was among the smallest.

Throughout all of 2009, incomes fell 1.7%, following a 2.9% boost in 2008, according to the Bureau of Economic Analysis. For the first time in more than three decades, Social Security recipients did not get a cost-of-living adjustment in January.

But private wages and salaries soared $16.1 billion, compared with a $2.3-billion climb in December. Government wages and salaries were up $6.1 billion.

Personal spending jumped $52.4 billion, or 0.5%, in January, according to the U.S. Department of Commerce agency. Spending, which makes up the vast majority of total economic activity, climbed 0.3% in December.

But consumers are saving less – the personal savings rate fell to 3.3% in January, from 4.2% in December, the lowest percentage since the 2.9% marked in October 2008. The amount saved dropped to $367.2 billion, from $467.9 billion.

Real disposable income, adjusted to remove price changes, suffered the largest tumble in seven months.

After taxes and inflation, the measure fell 0.6% in January after rising 0.2% the month before.
A key inflation gauge showed little movement. The core price index for personal consumption expenditures without volatile food and energy prices rose less than 0.1% in January. With food and energy, the index increased just 0.2%.

“Lower income growth and lower saving rate suggest that consumers will be more cautious in the months ahead, keeping a lid on consumer confidence and discretionary spending,” several economists wrote in a research note from PNC Financial Services.