By DAVE LIEBER
watchdog@star-telegram.com
Stansel Harvey says he feels burned by U.S. savings bonds he bought a decade ago that now pay zero interest. He takes it personally because when the government began issuing Series I bonds, he was a member of a committee that traveled the region promoting them.
Then the top administrator at Harris Methodist Southwest hospital, Harvey, now retired, recalls serving on the U.S. Treasury’s Fort Worth geographic center volunteer committee and marketing the new bonds as a way to beat inflation.
The bonds are different because their interest rate combines a fixed rate of return, set for the life of the bond, and a flexible rate tied to inflation. Adjusted every six months, it was designed to provide a bigger payout to investors when inflation rises.
Who would think that if inflation ever dropped to less than zero, it would reduce the bond’s earning rate to less than its fixed rate?
That happened last year, when energy prices collapsed with the economy and the consumer price index dropped below zero. The Treasury announced that the Series I bonds had fallen to zero interest for the first time since they were issued in 1998. Some bondholders don’t know that.
"That’s why I’m so angry," Harvey tells The Watchdog. "This is a deceptive trade practice. In fact, if a bank marketed a bond the way they marketed these bonds, they would be called into question."
The government takes a different view.
Joyce Harris of the Bureau of Public Debt says the lack of inflation "sort of wipes out that fixed rate." She explains that the lack of inflation pulled down both rates on the bonds to zero.
She denies any government deception.
"It’s quite transparent," she says. "It’s just a matter of understanding what you’re buying in any investment. . . . I can honestly tell you we’re not trying to be deceptive. We’re trying to be transparent in all of our Treasury securities."
She adds: "No one was expecting what happened to our economy last year. So every part of the economy has had to deal with that and regroup."
Until last year, the bonds paid interest, providing a return of 5.64 percent.
The language on the government’s Web site —
www.treasurydirect.gov — might be misleading to some.
A fixed rate of return "remains the same throughout the life of the Savings Bond," it says.
Unless deflation wipes it out.
The site also promises that Series I bonds "are a low-risk, liquid savings product. While you own them, they earn interest and provide protection from inflation."
Except when they don’t earn interest.
Harvey says he finds it particularly disheartening because small investors "who are wary of big financial institutions with their 'small print’ have always been able to trust savings bonds."
He adds: "I think people turn to the federal government thinking this is a safe place to put their money and get a return. Lo and behold, they’re not, and I think people need to know about it."
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