U.S. savings bonds look for a little respect

INVESTING

April 23, 2000|By BILL ATKINSON

In a roaring stock market, Dino DeConcini's job is next to impossible. And it has been that way for the past five years as investors poured billions into stocks and mutual funds.

But the latest market gyrations could play into DeConcini's hands. He's the executive director in charge of marketing U.S. Savings Bonds nationwide -- not an easy sell in a world where people demand 20, 30 and 40 percent returns each year.

Nervous investors, however, might take a second look at these ultra-conservative instruments, particularly Series I Bonds. "That is our silver bullet," says DeConcini. "This bond appeals to everybody, small savers and really savvy investors. I think our problem is people just aren't aware of it."

That's DeConcini's job, to tell the savings bond story.

An attorney from Arizona, he was appointed to the job five years ago when the Dow Jones industrial average was at a mere 3,850 points. He has worked hard to put a shine on the I Bonds as well as the lackluster EE Bond.

Last year, DeConcini gave 115 newspaper, television and radio interviews in 20 cities from New York to California. He speaks fluent Spanish and has worked to tap the Hispanic-American market.

"We have got to be aggressive," says DeConcini, 66, whose brother Dennis DeConcini was a U.S. senator from Arizona. "If I waited for the phone to ring, it would be a long time."

Sales of I Bonds, which were first offered in September 1998, are brisk. The government sold $455 million worth in fiscal 1999, which ended Sept. 30. What's more, the average I Bond sale is $800 per bond -- more than twice the average savings bond sale of $300. That is a sign that new investors are buying I Bonds, he says.

Yet I Bonds are still a fraction of EE Bond sales, which totaled $4.2 billion last year.

EE Bond sales have plunged since reaching a high of $17.2 billion in 1992. They were a sizzling investment in the mid-1980s, when they paid a guaranteed 7.5 percent for the first 10 years. But the government reduced the guaranteed minimum rate to 4 percent in March 1993, and then in May 1995 eliminated the minimum guaranteed rate on new bonds in favor of a variable rate tied to government securities. "I Bonds will reverse the decline in sales," DeConcini says.

What is so special about I Bonds? They are easy to understand, simple to buy and pay a rate that isn't easy to dismiss, DeConcini says.

I Bonds sell at face value, and investors can purchase them for as little as $50 or as much as $10,000.

The security has two components: a fixed rate that lasts the life of the bond, and an inflation-indexed rate that changes twice a year.

The government announces the fixed rate in November and May, and bonds bought in those six-month periods are locked in at that rate for the life of the security. The current fixed rate, which is based on the average return of five and 10-year Treasury notes, is 3.4 percent.

The inflation adjustment -- determined by the Consumer Price Index -- also is announced in November and May, but that can change every six months over the bond's life.

The semiannual inflation rate is combined with the fixed rate of an I Bond to determine the I Bond's earnings rate for the next six months. I Bonds bought during the current six-month period now pay 6.98 percent, which is "just phenomenal," DeConcini says. "The I Bond is the perfect long-term savings vehicle."

Compare it with EE Bonds, and there is little contest.

EE Bonds, whose payout is tied to the average yield on the five-year Treasury, currently pay 5.19 percent with no adjustment for inflation. Both EE Bonds and I Bonds are exempt from state and local income taxes; federal income taxes can be deferred for up to 30 years until the bonds are redeemed. Like other savings bonds, investors must hold I Bonds for at least six months, and if they cash them in before five years, they lose three months' worth of interest.

The Treasury Department has taken steps to make buying savings bonds easier. In November, the government began selling savings bonds over the Internet. Investors can click onto the www.savingsbonds.gov Web site and purchase bonds with a credit card.

Banks are also starting to sell them to customers who bank online. And customers can sign up for EasySaver, which allows the government to withdraw a specific amount of money each month or each year from a customers' checking or savings account and invest it in savings bonds.

The programs are helping DeConcini's effort. Meantime, he's on the road, trying to persuade people to save with savings bonds. And even in the face of a rising stock market, DeConcini believes that he has an appealing product.

"The I Bond ... sells itself. It is just going very, very well," DeConcini says.

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