Editor’s note:This blog post was authored by Jerry Kelly, National Director of the U.S. Department of the Treasury’s Ready.Save.Grow. campaign.
Encouraged by recent economic gains and lower levels of household debt, Americans are seeking greater financial stability by making saving a priority.
According to the U.S. Bureau of Economic Analysis, we saved 6.5 percent of our disposable personal income in December 2012, up from 3.4 percent in December 2011. That translates to $805.2 billion in annual savings.
At the same time, however, the Corporation for Enterprise Development (CFED) reports that almost half of our households don’t have enough savings to fall back on in the event of an emergency.
Amid the conversations about the personal savings rate and helping inexperienced savers build assets, a few concepts ring clear. We are best able to save when:
- We have the money (e.g. on pay day or at tax refund time);
- We pay ourselves first, and;
- A straight-forward opportunity is presented to us.
We don’t have to look far to find a great tool that meets these conditions. With tax season now in full swing, many of us will “have the money” through a refund of our federal taxes. We’ll also have the chance to “pay ourselves first” by splitting our refund to send part of it directly to savings and the rest of it to our checking account or debit card—even to our mailbox in the form of a check. And we can do it in a “straight-forward,” single-step process by completing IRS Form 8888—Allocation of Refund (including Savings Bond Purchases). Most e-file software and tax preparers will help split a refund.
According to the IRS, Americans received more than 110 million tax refunds last year with an average return of $2,803. Even taking just $50 or $100 of the refund to start saving now can help us kick start our long-term savings goals.
For those of us who aren’t sure how to save part of our refund, Form 8888 makes it easy. We can buy paper Series I Savings Bonds in amounts ranging from $50 to $5,000 or deposit all or part of our refund directly into our existing TreasuryDirect online accounts to buy digital savings bonds. In either case, we can buy bonds for ourselves or to give as gifts to children, relatives or friends.
Whether we’re experienced investors or making our first attempt at saving, Series I Bonds are a safe, convenient, and affordable way to learn about several key elements of an investment:
- Affordability—What is the minimum we need to invest? I Bonds are available for as little as $25.
- Risk—Can we lose any of our money? I Bonds never go down in value and are backed by the U.S. Government.
- Return—How much will we earn? I Bonds earn interest at a rate that changes every six months.
- Inflation—Will rising prices eat away at our return? I Bonds earn interest at a rate that is always higher than or equal to the rate of inflation.
- Liquidity—Can we get our money out if we need to? I Bonds can be cashed any time after they’ve been held for at least one year. (It’s better to hold them for at least five years to avoid early redemption penalties.)
- Taxes—What taxes will we have to pay? I Bonds are exempt from state and local income taxes and their interest earnings may be exempt from federal income taxes when used to pay for qualified higher education expenses.
I Bonds can also help us keep our savings momentum all year. We can reach our goals through a regular savings habit by saving each pay day with direct deposit. The Treasury Department’s Ready.Save.Grow. website offers more information about payroll direct deposit and other Treasury securities at www.treasurydirect.gov/readysavegrow.
Prepared by: U.S. Department of the Treasury, Bureau of the Public Debt
Ready.Save.Grow. is a service mark of the U.S. Department of the Treasury, Bureau of the Public Debt.