Last month, the TreasuryDirect.gov website crashed as investors scrambled to lock in the historic 9.62% rate for the next six months on Series I savings bonds ahead of the Friday October 28deadline. Despite the $10,000 per person limit, nearly $ 1 billion in purchase orders and more than 70,000 new Treasury Direct accounts were established on October 28th alone. More than $30 billion in I-bonds have been purchased in the past 12 months. The Siren’s song of irresistibly high government-guaranteed, state tax-free interest is difficult to resist. Like many financial planners, I have been urging consumers to hop on the I-bond bandwagon.
However, the purchasing process has its pitfalls. Many personal finance articles have highlighted the fact that the Treasury Direct website is dated and difficult to navigate. Many have also cautioned consumers about potential delays resulting from issues with the identity verification system for establishing new accounts. Further, overwhelming demand has caused the Treasury to eliminate email support while the phone queue to speak with a live customer support representative is typically many hours long.
Byzantine Website and Understaffing Confound Savings Bond Buyers
While these issues have all made headlines, there is an even darker threat to consumers that has received surprisingly little media attention – the very real possibility that the Treasury will accept your money and never pay you back. This is not hyperbole. Consumers who may not have understood the rules for how to fund I-bond purchases and have over-contributed to their Treasury Direct accounts face the possibility that they may not ever get their money back. Unfortunately, I can illustrate the overcontribution example from personal experience.
On April 21, 2022, I established a Treasury Direct account with the intention of purchasing $10,000 for myself and $10,000 each for my two minor children. My plan was to transfer in $30,000 from my bank account and to then gift $10,000 to each child. However, when I processed the transfer, I immediately received a notice that I had exceeded the $10,000 annual contribution limit and that I could expect a refund of my $20,000 over-contribution in 8-10 weeks.
The message also stated that I will receive an email notification when the check has been issued. I then figured out that I needed to purchase the I-bonds one at a time for each child in my Treasury Direct account instead of purchasing first and then gifting. I followed the procedure, and transferred in an additional $10,000 for each child for a total of $50,000 transferred to purchase $30,000 of Series I savings bonds.
Red Flags that Your Money May Be Gone – No Records/Reporting, No Support
The first red flag that I might not get my $20,000 back was raised when I logged into my Treasury Direct account and discovered that there is absolutely no record of my over-contribution. The $20,000 overcontribution does not appear in the account activity or in the account. The only documentation I have is the lone email I received on April 21.
The second red flag went up when, after four months, my money had not yet been returned. On August 31, after weeks of recorded voice messages telling me that I will not be able to get through to customer support because the estimate hold times exceed the eastern standard time business hours for Treasury Direct employees, I got up at 6 AM in Hawaii and waited on hold for more than two hours before I eventually got through to a support representative. The woman who took my call was friendly and seemed knowledgeable.
She advised that Treasury Direct staff have been overwhelmed. However, she reassured me that overcontributions were being processed and that they were currently working on refunds to people who made the overcontributions in April. She went on to advise that because it had been longer than 3 months, I would earn interest on the over-contribution amount and that I should expect my refund check imminently. I was relieved.
It is now November 30th. It has been more six months since my over-contribution, and I have not received my refund. Earlier this month, I sent a summary of my experience along with documentation of my funds transfers and the original overcontribution email I received from the treasury. The communication was sent via certified mail. On November 10th, I received an automated email telling me to expect a response with 13 weeks.
The Treasury Direct Website is Eerily Similar to a Ponzi Scheme
I have not received any subsequent communication from Treasury Direct. While I have copies of my bank records showing the $50,000 transfer for the $30,000 purchases, I have zero confidence that the Treasury will ever give me my money back. Were a bank or brokerage firm to provide no reporting and/or prohibit consumers from accessing their funds, the institution would be put into receivership and the executives at the firm would likely be facing jail time. This is decidedly not the case with the Treasury Department.
What if I had needed that money to pay tuition or to make payments on debt? The notion that the Treasury can simply keep consumers’ money indefinitely with no reporting and no communication is unfathomable, but it is very real. I am sure there are myriad consumers in exactly the same boat. I-bond buyers beware!
John H. (J.R.) Robinson, Personal Finance Editor at Hawaii Reporter, is the owner/founder of Financial Planning Hawaii, Fee-Only Planning Hawaii, and Paraplanning Hawaii. He is also a co-founder retirement saving and retirement spending software-maker Nest Egg Guru.