Reinventing Savings Bonds

Savings bonds have always served multiple objectives: funding the U.S. government, democratizing national financing, and enabling families to save. Increasingly, the authors write, that last goal has been ignored. A series of efficiency measures introduced in 2003 make these bonds less attractive and less accessible to savers. Public policy should go in the opposite direction: U.S. savings bonds should be reinvigorated to help low- and moderate-income (LMI) families build assets. More and more, those families’ saving needs are ignored by private-sector asset managers and marketers. With a few relatively modest changes, Tufano and Schneider explain, the savings bonds program can be reinvented to help those families save, while still increasing the efficiency of the program as a debt management device. Savings bonds provide market-rate returns, with no transaction costs, and are a useful commitment savings device. The authors’ proposed changes include (a) allowing federal taxpayers to purchase bonds with tax refunds; (b) enabling LMI families to redeem their bonds before 12 months; (c) leveraging private-sector organizations to market savings bonds; and (d) contemplating a role for savings bonds in the life cycles of LMI families.