D2D Fund

During the 2007 tax season, the D2D Fund, Inc. (“D2D”) and four Volunteer Income Tax Assistance (“VITA”) sites conducted a U.S. Savings Bond pilot test. From January 22nd to March 31st 2007, D2D and its partners offered Series I U.S. Savings Bonds to 4,841 low and moderate income (“LMI”) tax filers in four cities. This paper presents the results of this pilot, research and policy implications and specific recommendations for action. Key research findings include:

• Demand for U. S. Savings Bonds among LMI tax filers is strong, and is driven by high brand awareness and attractive product features – six percent (6%) of tax filers with refunds large enough to buy a bond ($50 or more) did so, and bought a total of 377 bonds worth $42,800. This compares with a 3.3% take up of IRAs for tax clients in another test.1 Nearly 75% of bond purchasers had heard of bonds despite the fact that the U.S. Treasury stopped promoting them in 2003.
• Bond purchasers, typically single, working parents, bought a significant number of bonds as gifts for the next generation – using tax filing status “Head of Household” as a proxy for a single parent, the profile of a bond purchaser is that of a single, working parent with a sizeable refund. 84% of these purchasers ordered bonds “co-owned” with others – mostly children or grandchildren – indicating an interest in securing the financial futures of their offspring.
• Tax filers who bought bonds bought them for the long term – with a 30 year life, a required one-year holding period and three-month interest penalty for redemptions before five years, bonds represent long term savings. 52% of purchasers surveyed after the pilot said they intended to hold onto the bonds for more than10 years.
• Savings Bonds may represent starter or first time savings for many – more than half (54%) of purchasers reported no existing money “saved or invested” and 67% of those surveyed after the pilot said they would have spent the money if they hadn’t bought bonds.

This initial research leaves a number of questions worthy of further study, such as:

• Scale – How can savings bonds be offered at scale over the long term? How can demand seen during the pilot be replicated? How much is demand dependent on one-on-one selling by costly “specialists”? How can bonds be made available and distributed easily and broadly?
• Gifting – Why was gifting was so popular? Why might parents be willing to save for their children when they are unwilling or unable to do so for themselves? Are LMI tax filers as likely to buy bonds if they cannot do so as gifts for their offspring?
• Long-term impact – It is easier to calculate the immediate effect a bond purchase has on an LMI tax filer than it is to measure the long-term impact. Are first time bond buyers more likely than non-buyers to purchase bonds in subsequent years? How will bond buyers’ overall savings and debt levels change over time, especially when compared with non-buyers?
• Bonds as starter product – pilot findings suggest bonds hold special appeal for tax filers with little or no savings. Might bonds offered at tax time have a special role to play as starter products that induce LMI individuals to begin saving or, ultimately, to consider additional financial products?

There are a number of straightforward, low-cost steps that could be taken to dramatically increase the accessibility of U.S. Savings Bonds to all tax filers. The Federal Government could unlock the potential of savings bonds for small savers by:

• Tapping tax time –adding a bond purchase option to tax returns.
• Reinvigorating marketing – coordinating marketing and promotion to complement and support a tax season bond purchase option.
• Tailoring products to the LMI segment – creating an explicit emergency redemption policy and shortening the bond term.