Problem using AMEX for US Savings Bonds
 

I just tried using a Starwood AMEX to buy US Savings bonds. These can only be done with a maximum of $1000 face value, so if you want to do more, you need multiple transactions.

After 3 transactions went through, the 4th was rejected. A call to AMEX indicated that they electronically flagged it as "unusual transactions on-line". They were able to adjust it so that further transactions went through - but suggested that in the future a call beforehand would avoid the problem.

By the way, if you do it now (before end of day eastern time on the 27th) the bonds will be dated Feb 1.

Related messages, for those who do not know about buying bonds with mileage-yielding credit cards, can be found at

http://www.flyertalk.com/forum/Forum1/HTML/005395.html (5 pages of messages)

and

http://www.flyertalk.com/forum/Forum1/HTML/005410.html (1 page)

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Middle_Seat
Texas Independence Day FT Get-Together March 2, 2002 -- See FT Community

I just bought 10 bonds on my starwoods AMEX card and had no trouble. Is it related to your credit line?

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DtG

It shouldn't be - I had plenty to complete all transactions - they said their software caught multiple on-line transactions and flagged it. Perhaps the software didn't flag yours due to differences in our buying habits. Who knows?

Always buy your bonds on the last day of the month as they earn interest from the 1st of the month. The converse is true when redeeming them -- redeem then on the fist day of the month.

I have bought as many as ten $1000 bonds in quick succession without AMEX stopping me. Maybe I just use my card so much that these purchases did not stand out!

Bruce

1. Does anyone know what the current interest rate on the I bond is?

2. What kind of penalty are there if I don't hold them for even 6 months? Do I lose any of the principals or just the interest?

(I took a quick look at the two related threads but couldn't find a quick answer)

Thanks!!

http://www.savingsbonds.gov/sav/sbirate2.htm

Look around here. You MUST hold the bonds for at least 6 months.

This is good advice except - on the Savings Bond website it said that Feb 27 is the last day for purchase for a date of Feb 1.

The best thing is to buy toward end of month, but AFTER closing date on your credit card (assuming you aren't getting the 0% interest on Hhonors Visa). Depending on your card, you could then pay it off about 1.5 months later, or about 2.5 months after issue date (1st of the month) - this nearly wipes out the 3 month early redemption penalty if you cash out in less than 5 years.

Current interest rate on I Bonds is 4.4%

Thanx for the info! Who'd a thought that the last day of Feb is the 27th!

I plan to use them and cash them in after 6 mos, and use the interest I receive towards my tuition payments -- that way, everything is tax free!

FYI


http://www.savingsbonds.gov/servlet/SBCPrice

This might be the problem. My card was denied at a store for a $3.74 purchase. I knew I had more than $1000 left from last months purchase and this month's purchase. When I called they said that that there was an additional $4000 hold from the us govt - even though the actual charges had posted. This makes no sense as there is no reason to have a hold - unlike a hotel which might not know what you might be charging and "holds" an amount. This happens when you "pay at the pump" - your card is authorized before you make your purchase and the hold $30-50 in case you are a motor home, so if you only buy $10 worth of gas, your available credit is down til it clears. So if your bond purchase is denied, it might be that the previous purchases have a hold which doubles the amount using up your credit line. So it might look like there is no problem with your available credit, but there might be. I was told what was being held when I called from the store.

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DtG

With my Delta AMEX the last two statement periods after buying 5 or 6K savings bonds each time one or two days later my availible credit was reduced to zero.The first time two different CSR said I was over limit because payment I made a week earlier doesn't credit until the END of the statement period & I would be charged 29.00 for being over the limit! LOL Second time it happened the CSR could do simple math and realized I should have well over 1k availible wrote some comments with my account & availible credit was reinstated.Bottom line if you have a AMEX card you need to always carry another card!

Don't leave home without another card. ;-)

Actually, if your credit limit is, say $5k, you can only buy $5k of stuff at a time. Once the purchases post, assuming that you have prepaid your account to cover all your purchases, you will be able to buy another $5k. So it can take many days to buy lots of bonds, even if you send in the whole payment ahead of time. I don't know why the credit card issuers do this, but they do. The only real relief is to get a higher credit limit.

Unlike my Citibank MC and Visa where I can prepay and restore available credit. AMEX does not let you do this. The problem seems to be - if you buy 5K in bonds, that the 5K is charged - but there is an additional HOLD of 5K (maybe a little less) which uses up 10K of available credit. If you still owe a balance from the month before, that also does not let you access your limit. So, if you have a 20K credit line, and balance from the month before of 10K, you buy 5K worth of bonds you might show no available credit even though in reality you have 5K left. If you pay the previous 10K it will restore 10K of your credit limit. Why there is an additional hold from the US GOV I do not know. I have e-mailed them about it but haven't really gotten an answer. Maybe eveyone could write complaining about the hold being put on the account.

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DtG

I'm thinking we should not complain. It's a wonder that we can use a credit card in the first place.

Having charges rejected, especially automatic ones is not pleasant, especially when there is in actuality more than 4K remaining on a credit card. There really is no excuse for it. I really don't think complaining about it is going to make anyone decide to no longer allow the use of AMEX.

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DtG

You might try calling them again.Amex seems to have a lot of poorly trained CSR.They seem to have a different line of BS for each person when it comes to savings bond.Last year Amex told a guy you could only buy 5K of bonds every 7 days.If you get lucky someone will understand & get your the credit you should have restored.If the situation is as you were told I wouldn't have been able to get my account credit restored with a simple phone call.I wish I had got her name,she has been the only somewhat competent person I have ever spoken to at AMEX !

I just called Starwood AMEX - the CSR tells me that the I-Bond purchases would be coded as cash advances, and wouldn't authorize me to purchase more than my cash advance limit.

This doesn't seem right, given this discussion thread. Is the info. in this thread still correct, i.e. these purchases are not cash advances and the limit is the Amex credit limit or $30K per person/per year?

Here's a link to the government's website which addresses this issue.

http://www.savingsbonds.gov/sav/sbdfaq.htm

Look at the fourth question:

Q:Is this considered a merchandise purchase or a cash advance?
A: Your savings bond purchase is treated as a merchandise purchase. It is not a cash advance.

Maybe you could forward this link to the ignorant AMEX rep.

My AMEX card also gave me problems. I called and explained to "Amy," that I was was cut off after buying three $1000.00 bonds
and needed to buy more. She said, "you were cut off because it's a computer and NOT in human hands. Just what do you expect me to do about it?" She went on to say, "You got to admit it's pretty unusual for anybody to buy that many bonds online." I became extremely annoyed and asked for a supervisor as "Amy" began to get quite nasty. I'm tempted to write a letter to AMEX and enclose a printout of this message thread.

dgordon: I went through the same exact thing you did. I too, had tried to "prepay" to extend my buying power and found out I couldn't do it either. But this had nothing to do with the problem I encountered with "Amy."




[This message has been edited by Neal (edited 04-23-2002).]

As an ex-AMEX employee, I can tell you most of the problems can be avoided by calling ahead and telling the CSR you are planning a large purchase. The ones that don't have any problems thus far probably have large or unusual spending patterns, and the computer doesn't flag their purchase as a potential stolen card. If you think about it, multiple purchases for $1000 even, all in a span of a few minutes, tends to look suspicious. Second point is that while AMEX has no pre-set spending limit, in reality, it is based on your ability to pay. An extremely large purchase immediately after your cut (billing) date can be a warning sign for people planning to skip out or go into a financial crisis (CCC or bankruptcy).

American Express Optima will not allow you to exceed your monthly credit limit even if you pay off the balance mid-month. Why? I don't know.

Actually, I did call ahead the first time I bought bonds. I was told I may still possibly have trouble and did once again. So after that fiasco, it didn't seem worth the trouble to call again a second time, especially when I wasn't buying very many bonds.

FWIW, the savings bond website recently raised the transaction limit to $5,000. So instead of having to make five separate $1,000 bond purchases, re-entering all your information each time, you can do it in one go (for example, one $5,000 bond or five $1,000 bonds).

See bottom left corner here:

https://wwws3.publicdebt.treas.gov/s...=78&button.y=8

I don't know if this change will help anyone who is running up against the Amex or Optima limits. The first time I purchased savings bonds online using my new Starwood Amex/Optima, I was only able to do $2,000 worth (two $1,000 bonds -- before the bond website limit was raised), and then my credit card was declined for the next $1,000 bond. In subsequent weeks, however, I was able to do larger bond purchases. Nothing to do with my total credit limit, but possibly to do with the fact that the card was newly issued.

Kathy

I hated that AMEX wouldn't let you pay off the balance and then continue charging. VISA and MC both allow you to do this and I have on many occasions charged well beyond my stated credit limit (you never know when a relative who is planning a LARGER cash puchase will accept your kind offer to put the purchase on your credit card and give them a few extra days to reimburse you with the cash. http://www.flyertalk.com/forum/biggrin.gif)

Wrong thread...sorry

[This message has been edited by afang (edited 07-07-2002).]

Why purchase I Bonds over EE?

My understanding is that the AMEX limit is $30K in face value per person per year, and the per person limit applies to the named bond holder, so a family of 4 would have a $120,000 face value limit or $60,000 cash purchase limit?

Can Visa or MC be used for purchases too?

nologic - the answer to the question of why purchase I over EE is one that's somewhat difficult to answer. I bonds are inflation protected bonds, whereas EE are standard bonds which pay a rate of interest linked to current market rates.
Having said that, one reason to purchase I bonds is that the annual purchase limit per person (imposed by the US govt - not by AMEX, as your post suggests) is 30K. EE bonds, which are purchased at the discounted face value have an annual purchase limit of 15K per person.

So, if you only want to buy one series of bonds, you can purchase more I bonds than EE, but that's relatively inconsequential. In addition, you can purchase both series if you wish.
And, yes you can use MC/Visa as well....again, this is something determined by the govt. Best wishes.

Got it...thanx...

I understand these rates are exempt from state taxes and accumulate exem[pt from Federal taxes (although taxable upon withdrawal), so the effective after tax yield is somewhat higher than the stated rate.

Both I and EE bonds (all Treasury securities, in fact) are exempt from state and LOCAL taxes. And, in the case of I and EE bonds, you actually have a choice to report and pay federal taxes on the interest on an annual basis OR defer the tax until the bonds are cashed. What's more, you can switch from doing it one way to doing it the other way, subject to some limitations I'll explain if anyone's interested.

It doesn't seem like the interest compopunds tax free, like it does in a 401K...but at least you are paying the tax in future (infaltable) dollars...otherwise, why would anyone pay the tax currently, unless they are in a low tax rate?

nologic - Actually, the interest does compound tax-free like a 401K,,,,in the sense that taxes are paid when withdrawn. Remember that taxes are payable on the funds withdrawn from the 401K, its just that the contributions are deducted from currently payable taxes in the year they're made....which is really the only difference between the two instruments. Best wishes.

I think of my investments into savings bonds as much better than an after-tax contribution to an IRA. If I need the money, I can withdraw it with a small penalty.

NO NO No, this is totally false. There are numerous differences between investing in savings bonds and investing in a 401(k).

1). Savings bonds are free of state and local taxes by federal law and 401(k) withdrawals are NOT. Although and importantly, some states exempt a certain dollar amount of withdrawals from retirement accounts from state income taxation, depending on the withdrawer's age.
2). Premature withdrawals (prior to age 59 1/2) from 401(k)s are subject to a 10% penalty based on the entire withdrawal (subject to several exceptions, but the exceptions apply only to the penalty and taxation remains!), whereas premature redemptions (prior to 5 years from the month of purchase) of savings bonds are subject to a penalty of 3 months' interest (NO exceptions).
3). Contributions to 401(k)s are deducted from current INCOME, not current TAXES (bseller is confusing a tax DEDUCTION with a tax CREDIT; not the same thing at all), while purchases of savings bonds have no effect on income taxes at the time of purchase.
4). You cannot choose to report the increase in value of a 401(k) on a current basis, whereas you can with savings bonds.
5). Interest on savings bonds can be free of income taxation if used for educational purposes under certain circumstances, whereas 401(k) withdrawals NEVER are.
6). Savings bonds allow the holder to choose between tax deferral or current taxation and this valuable option is NOT available with 401(k) plans.
7). There are zero transaction costs involved with savings bonds. There are zero ongoing fees. There are zero bogus marketing costs (= "12-b1" fees that you have with some mutual funds in 401(k) accounts).
8). The value of EE savings bonds increases monthly, the value of I savings bonds adjusts monthly (possibly downwards in the case of deflation, although this has never happened YET), and the value of 401(k) assets fluctuates daily.
9). When one decides to redeem savings bonds, one knows with certainty how much one will get, whereas if one redeems 401(k)assets, one is at the mercy of the daily closing price, which is ALWAYS UNKNOWN at the time the redemption decision is made.
10). You can't get frequent flyer miles for 401(k) contributions but you can if you buy savings bonds with a mileage earning credit card.
11). You can't get any interest-free float on 401(k) contributions (in fact, the opposite occurs in most situations), but you can with savings bonds purchased with a credit card.
12). You can walk into any bank in any town and redeem savings bonds for immediate cash. Try that with your 401(k) = NOT.
13). You have to have earned income to contribute to a 401(k) plan; not so with savings bonds.
14). Even if you do ELECT to pay tax on redemption of savings bonds, the taxation is only on the increase in value. Every dollar withdrawn from a 401(k) is taxed, even if it has DEcreased in value (of course, you do get an up-front reduction in taxable income when you contribute to a 401[k] and you don't with savings bonds.)
15). Under certain circumstances, you can borrow against a 401 (k) account (although this is seldom a good idea IMO) and you can't do that with savings bonds.
16). 401(k) assets receive preferential treatment (cannot be seized) in bankruptcy in many states (most states I think, but would not swear to it and am not an attorney), whereas savings bonds do not.
17). You must begin to make mandatory minimum distributions from 401(k) accounts starting no later than age 72 and this is not the case with savings bonds.
18). You can buy up to $45,000 worth of savings bonds per social security number per year and this is the same for everyone; the limitations on 401(k) contributions depend on many factors and basically are different for each person. But, for the average person, the 401(k)limit will be far lower than $45,000.

And, to answer a previous poster, you might want to elect to report the interest income currently if you expected to be in a higher tax bracket in future years, compared to the bracket you are in right now. For example, you are in graduate school, you are a commissioned salesperson having a slow year, you have a large casualty loss, or many other possible scenarios.

BSeller, a very dangerous and inaccurate post!

Doakes

[This message has been edited by JoeDoakes (edited 07-10-2002).]

[This message has been edited by JoeDoakes (edited 07-10-2002).]

Joe Doakes - You are obviously correct about the many, many differences between bonds and 401k's and my earlier post was inarticulate when I said: "this is the difference between the 2 instruments"....

I had intended to imply that the difference (when related to nologic's question), related to the ability to reduce current income with contributions to an IRA, which is not available on bonds. My earlier post was also 'intended' to indicate that bonds do in fact, compound tax-free, like a 401k, which was what I understood nologic's question to be.

Mea culpa if others interpreted my poorly worded answer in terms of the differences between the instruments......there are clearly many differences between them as you've ably pointed out.

Best wishes.

I am probably wrong, but I thought when interest compounded tax free, that you earned interest on the interest ... whereas with Savings Bonds, I thought the interest was a set amount each year (not compounding and increasing each year)?

You are incorrect. Series EE bonds are sold at a discount to face value and the interest rate is applied to an ever-increasing amount. Series EE bonds have an initital maturity of 30 years; however, the government guarantees that they will at least double in value after the first 17 years. This is equal to an effective annual rate of (take the seventeenth root of 2.0 and subtract 1.0) 4.16% (rounded to two decimal places). After the 17th year, the government can change the terms for years 18-30. Series EE rates are determined by taking 90% of the average yield on marketable five-year treasury securities. So, although it is often said that EE bonds pay a "fixed" rate, this is not exactly true!

Series I bonds are more complex. They are sold at face value and there is an interest factor (fixed for the life of the bond) and an inflation factor (variable and determined twice a year). The inflation factor could in theory be negative for any given six-month period, so the interest could in fact be applied to a decreasing amount (although as I stated in my earlier post, this has never happened - yet. I bonds have only been around for roughly five years or so). However, you are guaranteed to receive your entire principal if held to maturity, even if there should be persistent deflation. Unlike EE bonds, I bonds' terms canNOT be changed over their thirty year life.

Hope this helps.

Doakes

This has been stated before but bears repeated.

Note, of course, that after the first six months, the bonds can be redeemed at accreted value minus the last three month's interest. Therefore, it's always possible to avoid the negative interest rate. This is not true of standard inflation-indexed bonds. The fact that rates are set on a lagged basis helps you avoid this problem as well. These two features are quite valuable embedded "options" of savngs bond.

And the overall interest rate will never be negative; if the inflation component is more negative than the fixed "real" rate, the adjustment will be held in abeyance until the inflation again "upticks." Mechanically, this is how they guarantee the full principal.

But actually, highgamma, you COULD "theoretically" still be exposed to a negative inflation component cuz it only adjusts every SIX months vs. the THREE month penalty (since the inflation adjustment is made in arrears rather than prospectively).

The option to "put" the bond back to the issuer on any banking day could be incredibly valuable and I know of no other instrument that provides this option WITHOUT exposure to intraday market fluctuations.

And miles too! What a country.

Sorry for the caps and don't mean to shout but too ignorant to figure out how to bold or italicize.