Treasury Inflation-Protected Securities

By David Enna, Tipswatch.com

I was alerted by a reader yesterday about an email sent from TreasuryDirect informing him that it is “discontinuing the ability” to fund savings bond purchases through payroll deductions.

Of course, the Treasury didn’t make this easy to understand. Technically, it said Treasury is ending payroll contributions to its zero-interest Certificate of Indebtedness (C of I) account, which is then used to buy savings bonds at regular intervals.

The email said:

As of January 31, 2025, TreasuryDirect customers will no longer be able to fund C of I from their paycheck. Contact your payroll provider to stop electronic deposits before January 31, 2025. After this date, any deposits to your C of I will be rejected.

The email links to TreasuryDirect user guide sections 301 to 310, which give “clarification” for this change. These instructions, naturally, are quite dense and mysterious, as is common with communications from TreasuryDirect. From User Guide 307:

The Payroll Zero-Percent Certificate of Indebtedness (Payroll C of I) is a Treasury security that does not earn any interest. It was previously intended to be used as a source of funds for purchasing Series EE and Series I Savings Bonds through the Payroll Savings Plan in TreasuryDirect, which will be discontinued on January 31, 2025.

The Payroll Savings Plan will be discontinued on January 31, 2025. You must contact your employer (payroll office) to have your payroll allotment/direct deposit stopped.

Rewriting history

The history of the payroll deduction program dates back at least to 1942, when the Treasury approved use of payroll deductions for the purchase of War Bonds. This later became known as the Payroll Savings Plan.

TreasuryDirect has a page providing a history of its Payroll Savings plan, noting that “In the minds of millions of Americans who grew up from the 1940’s through the 1990’s, savings bonds and payroll savings are synonymous. Many have never bought a bond in any other way.” But …

Payroll savings began a long decline in the 1980’s, as markets changed, and new financial products were created and began to be offered by employers. Products including 401(k) plans and employee stock option plans, both designed to help employees save for their futures as defined benefit retirement plans, gradually became the rule rather than the exception among large employers. These plans were more attractive to many employees, despite being less liquid.

In early 2003, Congress ended funding for the marketing of savings bonds, accelerating a previously slow decline for the payroll savings plan.

And then … “The payroll savings plan will be discontinued on January 31, 2025.”

And that means?

I suspect this is part of changes we will see in the savings bond program in the early months of 2025. I doubt the payroll-deduction plan is widely used anymore, so this may not affect many investors. Many employers, apparently, do not participate.

We know from recent “mysterious hints” from TreasuryDirect that changes could be coming to gift-box purchases of savings bonds, a purchase loophole that has been widely used in recent years as Series I Savings Bonds became attractive. And earlier this year, Treasury eliminated the ability to purchase paper savings bonds in lieu of a federal tax refund.

It seems odd that Treasury would eliminate the payroll-purchase program, which would appeal to ultra-small investors who might want to buy $100 lots of savings bonds at regular intervals. But, as I noted, this could be little used and a maintenance nightmare for the Treasury.

A lingering question would be: Is the zero-interest C of I being shut down completely? I doubt that, because this is where Treasury places funds with no known destination. This can happen when a user has incorrect banking information or no connected bank account. It is also where some investors briefly park money from maturing investments to await reinvestment.

And of course, some people are going to ask: Is Treasury preparing to close down the savings bond program entirely? I really don’t think so. That would be a disaster, because for many small-scale investors I Bonds are only easily accessible inflation-protected investment.

In addition, I Bonds and EE Bonds generally pay lower interest rates than most other Treasury investments, so the Treasury actually saves on borrowing costs by issuing savings bonds. Plus, actual payments to investors are usually deferred for many years.

As usual, Treasury could have done better with this communication. For example, it could have provided this information …

A simple alternative

If you were using the payroll deduction program and want to continue regular purchases of savings bonds, you can do this easily at TreasuryDirect.

• First, log into your account and navigate to the “BuyDirect” page.
• Select the savings bond you wish to purchase.
• Then, in the “purchase frequency” section, set up repeat purchases. Options are weekly, biweekly, monthly, quarterly etc.

Reminder: Your total purchases for a calendar year can’t exceed the purchase limit of $10,000 per person per year.

• Confused by I Bonds? Read my Q&A on I Bonds

• Let’s ‘try’ to clarify how an I Bond’s interest is calculated

• Inflation and I Bonds: Track the variable rate changes

• I Bonds: Here’s a simple way to track current value

• I Bond Manifesto: How this investment can work as an emergency fund

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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.