Paper Savings Bonds Soon to Become Extinct

For decades, Americans have bought savings bonds, both as an investment and as a patriotic way to support their country. But in less than two weeks, the once-ubiquitous bonds will disappear into cyberspace, and paper bonds will be no more.

As of Jan. 1, the Department of the Treasury will no longer offer savings bonds in paper form. In an effort to streamline operations, cut costs, and modernize the program, the Treasury will sell bonds solely over the Internet through its TreasuryDirect website.

The move could save the government $120 million over the next five years. And because the full slate of available bonds will still offered online, the Treasury doesn't expect any hiccups.

But Should You Buy Savings Bonds at All?

Since people have learned to go online for everything from grocery shopping to stock trading, buying savings bonds on the Internet may seem more like an overdue move than a big innovation.

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However, the move does raise a different issue -- a timely one, too, given the state of the country's financial system and the fact that Social Security pays the average recipient barely a minimum-wage salary: The real question is not whether you should buy paper bonds before they go digital, but whether savings bonds -- in any form -- are worth your money.

Unfortunately, savings bonds have largely lost their desirability as an investment in recent years. As with many other savings vehicles, including bank CDs and money market accounts, savings bonds are suffering from poor interest rates.

Earnings Have Disappeared Too

Right now, regular series EE bonds earn just 0.6%, with the rate fixed for the next 20 years. The series I savings bond, which is inflation-adjusted, has its value rise and fall with the inflation rate -- but it pays no premium above that amount.

That stands in stark contrast to the situation in the past. A decade ago, I bonds paid 3 percentage points or more above the inflation rate. As recently as 2006, EE bonds paid 3.7%.

The main advantage of savings bonds is that they let you invest very small amounts of money -- as little as $25. That makes it a convenient way for even low-income workers to save. But without the competitive rates they used to have, they simply aren't a very good long-term investment anymore. Paper savings bonds may be disappearing, but that's nothing that savers should mourn.

Motley Fool contributor Dan Caplinger has some old savings bonds with better rates.