Saving Bond secret is out!
 

Hi,

As some of us know, we can buy bonds with our FF miles earning credit cards and then redeem the bonds 6 months later to churn the money again in more bonds.

Well, WSJ's Personal Journal (secion D) just published today an article about "How to Juice the Return on a Savings Bond", front page of section D. Subtitle is .

I'm guessing in a short while, this will be cracked down by credit card or US Treasury once a lot more folks start taking advantage of this after reading the article. http://www.flyertalk.com/forum/frown.gif

I don't see why the Treasury would "crack down" as they're the ones who set the whole thing up this way, so they are well aware of the economics. Somewhere on this board I read that their costs may actually be lower this way because they formerly paid a commission or service fee to financial institutions for selling them.

Any crackdown might come as an extention to the time to hold without redemption or a bigger early redemption penalty.

Alternatively they may take the position that we would pay for cc transactions as the IRS does, or reduce the fees it will pay the cc companies, which will certainly make a number of them not accept for points these transactions.

All these possibilities (probabilities) are too bad for us. Personally, I buy for investment balance and enjoy the bonus of points. From the article it is obvious too many people are abusing the buy and sell option. These "smart" people again will precipitate the loss of a good service to the rest of us. Both cc policies and Treasury policies are probable for changes.

My credit card company, Farm Bureau Bank, has already clamped down on me. (Keep in mind that FBB used to give up to a 2% cash rebate for all card purchases, this good deal was recently changed and we have only up to this Oct 31 to get our rebates at this rate.) Anyway just last week they sent me bad news saying, among other things, that Savings Bond purchases would be ineligible for reward points, click here to view the full text: http://www.boomspeed.com/yanxfann/fbb.jpg

Hosers.

Adios FBB.


[This message has been edited by yanxfann (edited 10-02-2002).]

It will be a shame - for investors like me who have not yet ever cashed in a bond - so I am not churning, but certainly the incentive for this investment are the FF miles I get from the transaction. I would only cash them in when I need them - otherwise it is a savings vehicle. So far, a better one has not come along. Compared to the stock market, I have not lost 1 penny of principle and it is paying better than my money market and cd's.

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Ms.DtG

early word is that the story idea came from FlyerTalk - which wasn't credited. Oh well, you all know the most excellent adivce that has been posted up here regarding that topic. Wonderful job gang - great advice.

Sorry, but that's not true. the writer heard about it from an MBA friend of his, who happened to read the thread at the finance board on www.fatwallet.com.

UA_Eagle: is it possible for you to cut and paste the WSJ article so we can read it here?

Anyone have the link to the WSJ story that they can share?

I doubt this. There have been threads about getting miles for bonds for well over a year on FT. It's well established that WSJ reporters canvas FT for story ideas, so why would there be an article about this NOW all of a sudden?

One of the longest, but not the earliest, threads on this topic is at

http://www.flyertalk.com/pasttalk/ft...ML/005395.html

In fact it seems to be the other way around: FTers started hardcore bond-buying as a result of an earlier WSJ article!

I bellieve today's article mentioned that some $560 million of bonds were bought via credit cards in 2001. Assuming a 2% merchant fee, that would mean the Feds are eating about $11 million a year (slightly higher for 2002, undoubtedly). Not that the federal government does too many things for free to help you, but how big a deal is $11 million, really?

As soon as the stock market turns around (whenever that may be) and stock market returns are greater than the return on these bonds, people will start pulling their money out of savings bonds.

When the return on the bonds plus the value of the FF miles becomes less than the return on some other investment vehicle such as CD's, stocks, etc., then the US Treasury will probably start advertising the ability to earn FF miles on bonds purchases as an incentive for investors to purchase bonds.

avdav

I double the motion. I don't subscribe to the WSJ, so I can't access their online archives.

But I kind of doubt (I hope) the Treasury will change the rules just because of this article. Maybe 1% of the transactions that pass through their website are people just buying bonds for whatever purpose they discussed. There is nothing illegal or immoral doing that. In fact, I have done the same to the tune of $18,000 in EE and I bonds this year. Money that I would probably not have invested in savings bonds otherwise, so it's more money for the Treasury than if I couldn't buy bonds via credit cards.

The timing of purchasing of bonds with a credit card at the end of the month to earn interest from the first, they (the Treasury) fully point out on their website, plus posting their transaction limits.

Also, if one is "churning" bonds, there is a cost involved. That is you lose three months interest. If you cash the bonds six months after holding them, you have lost half your interest, which the Treasury gets to keep. So I don't see how churning can be compared to "plundering the Treasury."

I kind of doubt the Treasury will change the program which would effect ordinary investors who might be buying small amounts or as gifts, just to stop some churning of savings bonds.

The whole Government securities market is huge (in the trillions) with people buying and selling billions and billions of dollars of Government securities daily. This savings bond thing is just a drop in the bucket in comparison.




[This message has been edited by burgerwars (edited 10-02-2002).]

Really, how many people in the US can put their money out there for 6 months to earn miles http://www.flyertalk.com/forum/confused.gif

I guess there are some, most of them belong to FlyerTalk anyway.

I really doubt that there will be a crackdown on this.

Now, if Bill Gates gets a hold of this http://www.flyertalk.com/forum/eek.gif

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Another evil plot for world domination through the use of points and miles.

Sure, but I don't want glue and paper on my screen. http://www.flyertalk.com/forum/biggrin.gif I read about it in the newspaper this morning. I would guess that there is an online version of it, but I don't subscribe to WSJ.com.

BTW, I just went over to their site anyway (at least the public and free parts), went to the Personal Journal and tried to find the article, but I didn't see it. http://www.flyertalk.com/forum/frown.gif Although I did see just now that the code sharing between UA and US has been approved, but you have to subscribe to WSJ.com to read the actual article. Oh well.

[This message has been edited by UA_Eagle (edited 10-02-2002).]