Reinventing savings bonds

Peter Tufano, Daniel Schneider, Harvard Business School. Division of Research

Savings Bonds have always served multiple objectives: funding the U. S. government, democratizing national financing, and enabling families to save. Increasingly, this last goal has been ignored. A series of efficiency measures introduced in 2003 make these bonds less attractive and less accessible to savers. Public policy should go in the opposite direction: U.S. savings bonds should be reinvigorated to help low and moderate income (LMI) families build assets. More and more, these families' saving needs are ignored by private sector asset managers and marketers. With a few relatively modest changes, the Savings Bond program can be reinvented to help these families save, while still increasing the efficiency of the program as a debt management device. Savings bonds provide market-rate returns, with no transaction costs, and are a useful commitment savings device.