Savings Bond payroll plans in decline

Tuesday, January 24th, 2006
Categorized as: Savings Bond history

Yesterday, I told you about A special bond, an article that ran in the Pittsburgh Tribune Sunday. The article included an interesting quote from Steve Meyerhardt, a spokesperson for the Bureau of Public Debt, on the role of Savings Bond payroll savings plans.

Yesterday I asked Meyerhardt for more information on the relative importance of the plans. He said that until 2001, scheduled investments made through these plans generally contributed the majority of Savings Bond investments. For the most part, payroll investments were 55% to 65% of all investments, with exceptions in years in which interest rate differentials drove over-the-counter bank transactions.

But sales patterns have changed radically for a variety of reasons, including:

  • the increasing success of the Series I bond
  • the end of marketing support for payroll plans in 2003
  • company encouragement of employee investments in 401K and other retirement plans rather than Savings Bonds
  • the decline of unionized industrial companies in the U.S., which made up the bulk of payroll savings plan investments

In addition, Meyerhardt said, electronic investments are all counted as over-the-counter, even when they are a result of scheduled transactions.

In Fiscal Year (Oct-Sep) 2005, for example, payroll sales made up a little more than 25% of overall paper dollar sales ($1.351 billion payroll savings versus $4.121 billion over-the-counter), Meyerhart said.

TreasuryDirect online investments were $787 million in FY 2005 and could soon account for more incoming dollars than payroll savings plans.

“Due to the lack of support for payroll savings plans, and the changing makeup of employers and their benefit plans, I expect that sales through payroll savings plans will continue to steadily decline as participants drop off and are not replaced,” Meyerhardt said.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

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