Agreed. Get 'em while they're hot! I hate it when a great deal gets too popular...

Here's a link to a copy of the WSJ story:

http://www.fatwallet.com./forums/mes...hreadid=113316

I predict the US Treasury Dep't will do absolutely nothing to change the system. In fact, they'll be tickled pink if the article gets more people to sign up to buy savings bonds.

Consider that even with the CC fee, the gov't pays less interest on the savings bonds than the bonds which are transferrable and sold at auction.

Also consider how much it used to cost the treasury dep't to sell savings bond via banks as resellers. Ouch. Even paying the credit card processing fee, it's almost certainly cheaper than the old way.

Remember the whole purpose of savings bonds is to reduce the governments reliance on high-interest bond sales to finance its debt. It takes money out of state government pockets because the interest isn't taxable by states, and then transfers the effective savings to the federal gov't.

Good deal for everyone except the CC issuers giving out the rebates (or miles) and the state gov't treasury departments.

Right now, that's not true. The EE bond rate is significantly higher than the 10-year T-bond yield, even without considering CC fees. This is admittedly an unusual situation, due to the fact that savings bond rates lag and market rates have declined so steeply this summer. People tend to pile into savings bonds under precisely these conditions. The CC fee only pays for itself if the buyer holds the savings bond for several years. I plan to hold until a significantly better rate appears elsewhere, which might be several years or might not.

And don't forget, the Feds need all the money they can get their hands on since 9/11. The war in Afghanistan will cost a pittance compared to what they (we!) are getting ready for in Iraq. As long as it's cheaper overall for the govt to get the money this way, we'll be getting our miles/points.

Plundering...ok...

I'd like to know what the percentage is for those of us crafty folks who are buying bonds and selling versus buying and holding. I've purchased over $60k in bonds and plan to keep them for my retirement.

I'm sure that most of us don't intend to go through the hassle of "flipping" our savings bonds. However, their liquidity (our ability to cash them any time after six months in case we need the money with only a 1% penalty) is crucial in our purchase decision.

actually, depending on your calculation and especially if you hit a double or triple promotion (miles and points) right, i'd argue you're return is often greater for flipping. keep in mind that with a statement date close near the end (but not at the end) of the month, you can essentially float 2 1/2 months (credit card and gov combined) before your payment is due, thus negating the 3 month penalty somewhat (which is only a 2 month penalty if you buy bonds at the very end of the month, regardless of your c card's closing date). your points or $$$ earned from your affinity credit card for the purchases is almost always "tax free", thereby increasing the overall APY for flipping a couple of times a year.

the gov does get screwed though. if they are in fact paying 2-3% each time, then this is 4-6%/year they're paying to the c card company BEFORE your measly interest. where the article is contradictory, however, is when it makes it sound that credit card companies are finding it necessary to scale down affinity programs for bond purchases. if i'm Citibank, and providing 1% cash back after taking in 2-3% from the gov, i'm better off than preventing you from buying them.

i also don't see this as raiding the Treasury. in theory, i think the gov would see more demand, thus causing lower bond rates and the ability to renegotiate the fees paid to credit card companies. some credit card companies refuse bond purchases as a result, and some investors find the total return not as attractive, and therefore don't buy bonds like this anymore, thus allowing the non-flipping, long-term holding, traditional buying (non-credit card) bond holders to keep buying them while eventually freezing out the flippers.

I doubt that the govt is paying 2-3%. Companies far smaller than the US govt get rates for less than 2%. I'm sure they got AMEX to reduce their % to be equal with visa/mc for the potential volume of purchases.

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Ms.DtG

With whatever rate the Government is paying it still has to be lower than what they were paying the financial institutions to sell and cash bonds.

Over a year ago, Money Magazine or the Washington Post (possibly both) had an article about purchasing savings bonds online and obtaining either miles or a cash rebate for purchase. Unfortunately, I do not have a link to the article.

Well, that's great! If that article didn't shut down the program, maybe the WSJ article won't, either



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The Personal Travel Experience of Gary Steiger - including how to get free frequent flyer miles on the web.

I don't think that this is any new news to the govt and I don't think it will shut this down. If they changed the minimum redemtion time to 1 year instead of 6 months if purchased with a credit card, but then they would have to keep track of who purchased bonds with a credit card. I think the "churners" are in the minority. I started buying bonds when I saw an article in the local paper and was one of the first to list it here. I haven't cashed in a bond yet, and I sure am glad I bought I bonds when they were paying 7.5% with a fixed rate of 3.5. Once bought, I forget I have them and will only cash the most recent ones if the interest rates begin to rise above what they are paying or I really need the money. After 6 months they are liquid, so anyone not needing the money could leave them. Remember the 3 months loss averages less of a loss the longer you leave them.

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Ms.DtG

I went on a buying spree with my Starwood AmEx card back in the spring with the intent of flipping the bonds over in six months to earn more miles. However, I've re-thought this strategy since then given the lower interest rates and bond rates.

I think we're safe for the time being. Still, as mentioned, the Government probably pays much less in a commission to M/C and Visa than a regular merchant. Reasons for the best rate are all transactions are electronic, the average purchase is larger than most merchants, very little credit card fraud (I couldn't imagine a criminal using a stolen credit card to buy bonds in their own name) and all sales are final (no refunds). High return rates are probably the biggest reasons why M/C, Visa and American Express will charge merchants more. Discover Card is known as the card that is most likely to drop a merchant for high return rates.

I also can't see the Government issuing different types of EE and I bonds, based how someone paid for the purchase, with credit card purchases having a one-year holding period instead of six months. Something like that might require an act of Congress to change the rules. And is the Government going to penalize an average purchaser who is buying a bond on a credit card as a gift, or for themself, just because some bond buyers might churn them? Unlikely. The Government already enjoys lower costs in issuing them directly via their automated web site using credit cards, than having a local bank manually help complete a purchase. Plus there is also the built in three month interest penalty for cashing bonds before five years.

That said, there is nothing to stop a credit card issuer from treating certain classes of purchases (like savings bonds) not eligible for bonus points, rebates or miles.

What probably irritated the Farm Bureau Bank was they had a high rebate offer, and the percent they got to keep from bond purchases might not have been enough to offset the rebates they were paying. If a customer was buying $35,000 worth of stuff at WalMart with their card to earn rebates, instead of $35,000 in U.S. Savings Bonds, FBB would be smiling all the way to the "bank." But I hope FBB behavior is an abberation. So far, I haven't heard anything about Amex or Citibank treating these purchases different from others.

As far as this being a "secret." Hardly. Not widely known, but far from any secret. I read in the WSJ article that Savings Bond purchases via credit cards are up something like 68% in one year to $600 million. I doubt the Treasury looks at this as a bunch of churning. Maybe a small percent is, but the lion's share of this increase is probably a shift from people buying bonds at the bank to buying them online. Such a shift saves the Treasury money. If there is some churning there too, it's probably not anywhere near enough to offset the savings the Treasury enjoys issuing more bonds via their web site.

Wow, the secret IS out.

I had two guys behind me at starbucks explain the savings bond thing (w/ a cash back card) to a friend today...