A new company called USgiftBonds LLC is working to launch a savings-bond gift card this holiday season.
The company would offer gift cards that consumers can redeem online for EE savings bonds. Gift givers need to know the recipient's Social Security number to buy a savings bond at a bank, but they would not need the number to buy a gift card for a savings bond. Instead, when recipients redeem the cards, they would enter all the necessary information at the USgiftBond's Web site.
Company co-founder Brian Lawe says he wants to give savings-bond gifts "a new distribution channel and new life." "The intention is to offer these where you would any prepaid card," Lawe says.
Lawe got the idea when he and his wife were looking into buying a savings bond for their nephew. "It was just such a hassle to get it, and we thought, 'this could be done much more efficiently,'" he says.
But it took the company nearly three years to develop a product that met financial regulations and made economic sense. Buying savings bonds has become more difficult because the U.S. Department of the Treasury centralized its issuance, says Viveca Ware, director of payments and technology policy at Independent Community Bankers of America, a Washington, D.C.-based trade group.
"It used to be that a customer could walk into a bank–any bank–and the bank would actually issue the savings bond on the spot," Ware says. "Now the issuance has been centralized. Banks take the customers' orders and then forward them to the Federal Reserve."
Lawe says it was too much trouble for USgiftBonds to become a bond-issuing agent itself. Instead, the company found a bank to handle that aspect of the business. (The bank requested not to be named in this article.)
When gift card recipients enter their information online to redeem their gift cards, they would open a special-purpose bond account at the bank. The bank would use the information the consumer enters to process a bond contract with the government, Lawe says.
Finding a partner was difficult, he says. "You have to be a bank that's interested in working with underbanked customers and innovative prepaid products," Lawe says. "We must have talked to 18 banks."
The project was too small to catch the attention of the bigger banks, he says.
Banks' profit margins on savings bonds have been falling, so Lawe looked for a way of offering the bonds that was cost-effective for the bank and for his company.
"The only way you could do that was through the Internet," he says.
USgiftBonds tried to limit the online process to less than seven minutes. Aside from basic questions about the recipient's name, address and Social Security number, Lawe says, most of the process amounts to paging through bank requirements.
"You'll have to say, 'Yes, I've read these disclosure pages,' and then you say, 'I agree,' and then–bam–you're done," he says
USgiftBonds still is negotiating with distributors but plans to make the gift cards available for the 2008 holiday season. Lawe says customers would pay a $4.95 or $6.95 fee, depending on the card's value.
"The service fee is shared between the retailer and ourselves, and then the bank gets paid from the Treasury," he adds.
Banks receive 85 cents for each savings bond purchased electronically and 50 cents for paper transactions, according to a spokesperson for the U.S. Department of the Treasury's Bureau of Public Debt.
The Treasury Department used to promote savings bonds through the Savings Bond Marketing Office, but the office shut down in 2003 because of lack of funding.
Jeff Zinsmeyer, executive director of the Doorways to Dreams Fund, a nonprofit organization based in Roxbury, Mass., that focuses on savings products for low-income families, says most banks no longer train their staff to offer savings bonds. He considers that an unfortunate trend. "Savings bonds are a very important thrift tool that needs to be revitalized," Zinsmeyer says.
And security bonds could regain popularity as gifts, Zinsmeyer says. He has a project designed to encourage low-income families to invest their tax refunds in savings bonds. "Well over 70% of the bonds that were purchased were given to children," Zinsmeyer says.
"A savings bond is a special kind of gift," Lawe says. "If I give you a generic Visa or MasterCard gift card, it pretty much says, 'Go out and buy something at a store, and I hope you think of me.' If I give you a savings bond, it says, 'I'm thinking about your future,' and it's keeping that connection between us for a long time."