The Lost And Found Department

You want in? Make sure you can remember the password for 30 years.

Pre-digital bonds


Grab high-yielding U.S. Savings Bonds while they last! So proclaim personal finance experts from the rooftops. Bonds bought from now through April will yield 7.12% to start. An individual saver can put in a maximum of $10,000 (a couple, $20,000) per calendar year.

There’s a problem with this investment that scarcely anyone has addressed. Give it some thought before you open up a TreasuryDirect account.

The downside relates to what I will call the W.C. Fields phenomenon, in honor of the comic actor. Crisscrossing the country on the vaudeville circuit, it was said, he opened up a savings account in every small town and then lost track of the passbooks. This legend contains only a little truth, but it illustrates a very real problem. If you have money in many places, some may fall through the cracks.

The I bonds being touted have a 30-year maturity. Ponder who will be the owner in 2052. Might it be a forgetful 93-year-old? Or a clueless grandchild?

Financial assets do get mislaid. Every state has an escheat administrator whose job is to seize, from companies like banks, utilities and brokers, the funds behind any uncashed check or inactive account. A complex law of the jungle determines which state gets to confiscate which account. If you are missing some dough, you might find it by searching each state’s property file. The files display name, last address and a deliberately vague description of the amount (like “over $50”).

The states make a show of letting victims retrieve their money. They are not motivated, though, to alert account holders. Unclaimed dollars pay for important things like schools, highways and the salaries of escheat administrators.

Consider Delaware, known for its rapacity in this line of work (a federal judge commented on conduct there that “shocks the conscience”). The little state is counting on $525 million this year in revenue from abandoned property.

Some of this loot represents uncashed refund checks for small amounts. But bank and investment accounts also go into the hopper. Limiting the Delaware seizure file to entries in the over-$50 category and to hapless account holders named Baldwin, I quickly spot customers of Merrill Lynch and E-Trade who are each about to lose $300 or more, possibly a lot more.

The lesson here: Don’t invest like W.C. Fields. Put your financial assets in one basket, and watch that basket. Okay, perhaps two baskets: a bank plus a brokerage. Eliminate clutter. Have only two Form 1099s to deliver to your tax preparer.

Where do your Savings Bonds fit into this picture? Separately. These holdings, unlike marketable Treasuries, cannot be added to a brokerage account. To buy the bonds you set up a TreasuryDirect account and link it to a bank account that will fund the purchase. Optionally, to speed up future access, you register the device you use to create the account.

You’re now all set, as long as you don’t lose the piece of paper on which you wrote the account number and password. It would also help if, in 2052, you are using the same checking account and the same computer.

As for safety, the government has that nailed down with security questions (What was your first car? What’s your favorite movie?) to which a hacker would never guess the answers.

What happens to bank accounts and TreasuryDirect accounts when you pass on?

I don’t think it’s a good idea to leave behind a dispersed assortment of bank CDs. Now, I may be too fretful about the risk that an escheator will snatch the money. Allan Roth, a Colorado Springs, Colorado wealth advisor who sometimes makes CDs part of a fixed-income strategy, mentions this failsafe: If your heirs overlook a bank account, they will probably get a sharp reminder in the form of a notice from the IRS that some interest has not been properly reported on a tax return. They should then be able to rescue the asset by going to the bank or by searching state abandoned-property filings.

Savings Bonds are another story. No tax is due—and no 1099 appears—until the bond matures, is cashed in or is transferred.

Twenty years in, you get run over by a taxicab. Will your survivors overlook your TreasuryDirect account? They might. I certainly wouldn’t count on the U.S. government to track them down. The account won’t appear on any state listing; not even Delaware dares to seize funds from the U.S. Treasury.

Before digital accounts became the main vehicle for buying Savings Bonds, the bonds were issued in paper form. Interesting fact: The Treasury is sitting on $29 billion that belongs to the holders of expired paper Savings Bonds. These are bonds that have crossed the 30-year mark and are no longer accruing interest. Somebody put a bond in a drawer and then forgot.

I bonds are paying better than bank CDs at the moment, but they don’t yield any bonanza. The quoted 7.12% turns out to be the annualized sum of a real rate that stays fixed for 30 years and an inflation adjustment that is reset every six months. The real rate on Savings Bonds bought today is 0%.

Got that? Scrimp and save and at the end of 30 years your cumulative reward, in purchasing power, is zilch.

So, do you want to take a chance that your Savings Bond will go astray? If you really need to squeeze out a little extra interest on $10,000, go ahead.

After five years, Savings Bonds can be cashed in without an interest penalty. Keep an eye on the real rates on marketable Treasury inflation-protected securities. If TIPS yields, now negative, climb into positive territory, cash in your I bond, pay the damn tax on your phantom income from inflation adjustments and invest what’s left in a TIPS fund that can go in your brokerage account.

One other thing. Do leave a note in your desk for your estate executor.