Treasury Direct Review: Electronic Savings Bond Security Concerns

Despite the Treasury’s obvious dislike for the small investor, Series I Savings Bonds still offer a relatively good interest rate. As of January 1st, 2012, you will no longer be able to buy paper savings bonds other than a small window using your tax refund. The only option left is buying electronic savings bonds via TreasuryDirect.gov. This brings me to the following reader question:

Was just reading Mel Lindauer’s comments in the Bogleheads forum about I-Bonds and the trouble with Treasury Direct. Seems a great many folks hate the system to the point that they would rather not use it. 2012 is/was to be the year that I first began purchased I-Bonds, having finally got to the point of maxing out all other tax deferred and tax free methods. Now I am not so sure…what is your experience with TD?

First, let’s get to what I see as the main reason why most people choose not to use the online service at TreasuryDirect (TD). TD is not a bank and does not fall under Regulation E and the Electronic Fund Transfer Act that establishes consumer protections for loss or theft of money from your account.

If your paper savings bonds are stolen or lost, the Treasury has a process in place to reclaim your bonds. However, if somehow your electronic savings bonds were stolen, you would stuck with the loss with no liability from TD. It doesn’t seem to make sense, but it’s true.

So what do you do? The easiest thing to do is not use TreasuryDirect. But it remains a good investment, so in my case I looked into what security measures were in place to prevent such theft. In November 2011, TD instituted some security changes to their login process. What would a thief have to do in order to cash in your savings bonds?

  1. They need your account number, which is more like Z-12345678 as opposed to johnsmith.
  2. When you login with a new computer, a one-time passcode will be sent to your e-mail address. So, they would need to have access to your e-mail address as well. You can choose to register your computer for future visits if you like, but it would seem safer not to do so. I don’t log into TD very often so my cookie expires anyway by the time I log in again. This means a unique code is sent every single time I log in.
  3. They would also need your account password. I would hope your e-mail password and your TreasuryDirect password are different. In any case, it’s harder for viruses or keylogger programs to record your password because you must enter it using a virtual keyboard (unless you circumvent it by disabling Javascript).
  4. Now, at this point they have online access to your account and can see your balances. But to cash out a bond, first you must answer a security question (mom’s maiden name, etc.). More importantly, you can only cash out a bond to a linked bank account. So the thief would need access to your bank account (…which is protected by Regulation E mentioned above!)
  5. Alternately, they would need to send in a paper form adding an alternate bank account under their control. However, the name on the bank account must match the name on the TD account, and the form requires a Medallion Signature Guarantee where a third party checks official ID for identity verification. The TD website itself has improved over the years so that any small change (bank addition, profile change) results in a e-mail notice.

Personally, I deemed it exceedingly unlikely for an actual theft to occur and made the decision to go ahead and use the website. My holdings there are significant, but under 5% of total net worth. I know that others have also had technical issues with accessing their account, but I have not experienced anything like that. In the end, TreasuryDirect definitely has its flaws, and I would not fault someone for not using it as a result. You have to weight the risks and benefits for yourself.

Comments

  1. I was wondering if it is possible to transfer your Treasury Direct holdings to another financial institution/brokerage account?

  2. Being a web developer and Personal finance guy, I would TD has quite reasonable security gates to be broken in order to get into our vault. As Jonathan clearly mentioned the step by step route to get there, I wouldn’t say it is not difficult where the world has intelligent hackers but it far more secure than any other credit union or bank account. It follows the FED regulation on online security for any banks with security answers, virtual keypad like ING or others.

    So don’t just bother about it, just go ahead and take advantage of the rate which no other bank is giving these days.

    Good work on detailing the scenario Jonathan!

    Vijai

  3. (other) Dan says:

    @David:

    For marketable securities, yes. (TIPS, Treasury bills, notes, & bonds.)
    http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips_transfer.htm

    For savings bonds, no. As of 2012, the only way to hold new savings bonds (other than those obtained by tax refund) is within Treasury Direct. And they don’t let you convert existing electronic bonds to paper, only the reverse.

  4. I agree that they have pretty good security measures in place. One of the few places I don’t worry about getting my account hacked into or “stolen” is TD. I even called TD a few times and they were prompt at returning calls and providing information. I’ve bought Savings Bonds for many years, and I have been adding much more to my TD account all year since they pay better interest rates (I have some bonds paying 8% or more).
    My ING account, which has the majority of my emergency fund, is paying in the neighborhood of .865% interest, unreal.

    Even with adding extra to the I Bonds, it accounts for only 4% of my total net worth.

  5. I agree that TD’s security is very good (I perfer the matrix card over email). Maybe too much though. I’ve had problems getting a signature guarentee from several banks because they only sign certain bank transfer forms and stock & bond certificates, not third party ID forms. If my TD linked account had to change and I cant get a stamp, my money is locked.

  6. I just checked my TD account (opened it only last year) and realized that the electronic bonds and “paper converted to electronic” bonds are in different accounts (although linked). Is there a way one can see the consolidated balances with TD at any point in time especially given that all are now electronic?

    Also does TD issue annual paper statements? I assume one could file these for record in case the account is compromised?

  7. @John

    I feel your pain about the annoyance of having to deal with two different accounts in Treasury Direct.

    It messed me up last year when I received a note from the IRS saying I hadn’t reported interest on a savings bond I’d redeemed back in 2008 and owed the tax plus interest for being late. It turned out it was one of the converted paper bonds, in that separate account from which I have never withdrawn from other than that one time in 2008, so I wasn’t in the habit of finding my separate 1099 for the converted account and didn’t even think it would be listed separately.

    I believe the reason they keep converted paper bonds separate is that in theory someone might in the future call the treasury requesting information about the paper bond by the serial number that appeared on the paper bond, and they need to track where it went separately from the electronic bonds that were created originally as electronic bonds.

    So, unfortunately, we have to deal with two separate Treasury Direct accounts. Just get in the habit of checking the 1099 for both accounts every January even if you don’t immediately remember any taxable events from one or both accounts.

  8. That’s very interesting!

    Thank you for sharing, your posts are always pretty interesting.

  9. I never received an e-mail about the changes and realized they have my old e-mail address. So I cannot log-in at all. I sent them a note on their “contact” form several days ago, but have yet to hear from them. Any ideas?

  10. @PawPrint53: Call them – that’s what I had to do to unlock my account a little while ago

  11. Sarah in Iowa says:

    Ok, so that’s a thief taking it. What about TD itself losing electronic track of them? Unlikely, probably, but I doubt impossible to happen. Any recourse then?

  12. TreasuryDirect contact information:

    http://treasurydirect.gov/call.htm

    TreasuryDirect Please email or write to us
    Legacy Treasury Direct 1-800-722-2678
    Electronic Services for Treasury Bills, Notes, and Bonds 1-800-722-2678

  13. What if you, the TD account holder, passed away? Do your loved ones know that you have an account in TD and that they could cash out before the maturity date or they have to cash out on or after the maturity date?

  14. The paranoia of the Bogleheads is totally irrational. But of course, when they get an idea in their heads, it’s impossible to have any discussion at all.

  15. I would definitely keep a paper printout of the bonds along with account numbers that you own for additional verification. But other than that, what of Bank of America or Chase “lost track” of my deposits and all I had was e-statements? Keeping a paper trail (virtual if needed) of purchases is the best you can do, as far as I can see.

  16. Treasury Direct is the worst!!! Horrible customer service; virtually non-existent. Bonds impossible to change, cancel or even gift. Lousy idea all around. Don’t do it!

  17. With so many things that have gone awry in this country, it’s all the more sad that one can no longer buy a savings bond — an investment in the U.S. — without having to negotiate a maze of craziness.
    I set up my account in November and, since that time, have had so many problems with passwords, one-time passcodes, etc. — and not getting replies back from alleged representatives despite repeat calls and emails (does anyone really work at Treasury Direct? Hard to believe, the way the place operates . . . ) — that I’ve yet to purchase a single bond. By comparison, when things were done the “old fashioned” way, at banks, using paper forms, I’d have bought 10 or more bonds during this same period of time.
    Wonder how many others are not buying, because of technical glitches?

  18. What a painful website. I did complain 3 years ago about the card and insane GUI keyboard – promptly got a rude phone call from a ‘system security engineer’.

  19. E. Martin says:

    I’ve had a savings bond TD account for a long time, with a substantial balance.
    My recent experiences have me concerned, and now I would not recommend a TD account to anyone unless it is a tiny portion of their net worth, and they are extremely patient and have lots of time to deal with them.

    My recent experience:
    1. Very difficult to contact on the phone. Long waits. Sometimes can’t get through to a human at all.
    2. If you leave a voice message (which they encourage) you may or may not get a reply, and there’s no telling when of if you will.
    3. If you send an e-mail, response time has varied from same day (once) to 3 weeks, to no response at all.
    4. If they make a mistake on your account (and they sometimes do) be prepared to spend a lot of time to get it corrected. And your money may not be accessible for an undetermined period; maybe weeks.
    5. The people you reach on the phone seem pleasant enough, but appear unable to resolve issues on the spot, except perhaps resetting passwords or helping with internet access. They sometimes state that “they are backed up and it may take 3 days,” or “wait a week and see if they take care of it.” They really don’t know.
    6. Dealing with TD is not like calling your bank. Calling your bank is generally productive and prompt, even if sometimes painful. And if all fails you can usually just go to the bank and see someone.
    7. If a bank or similar institution provided service like TD, they would either not be in business for long, or would be closed by their government regulator.
    8. Their clunky web site is not the worst part of their service. One can learn to deal with that. And it does appear secure. But TD seems to conduct business as in the days before computers, even though they have a web site.

    They either do not have enough resources, or their leadership is poor, or both. I agree with the statement at the beginning of this blog: The Treasury Department has disdain for the small investor.

  20. For over 25 years my children’s Grandparents have given them EE Bonds on their birthdays and at Christmas. They are not computer savvy enough to complete this process now and asked that I do this for them. Well……….After my experience with setting up multiple TD accounts and no longer buying EE Bonds at a discounted price…..all very confusing to me. I thought I could navigate the bureaucratic maze, but now I’m not sure. I thought our Govt wanted Americans to buy Bonds? Without a doubt, with the paperless system there will be fewer and fewer Bonds purchased. This is Govt at its worst!

  21. It seems our government is in business of deception with system like Treasury Direct System. You can not depend on the government representative for the customer service in the treasury direct organization with name like “peggy” in TV commercial. You have no way of escalating the individual investor’s problems caused by the treasury direct system. There is no protection for the individual investor if the people working in the Treasury Direct organization take your money or hide it or send it to deferrent account. You can not legally fight it if TD system causes the loss of your hard earned money if you are small individual investor. Too bad President Obama has allowed his Secretary of Treasury to create system like this with no tranceparancy and without any hardcopy publication. The TD system seems like ilegal public system.

  22. Don Ward says:

    After buying hundreds of small U.S. Savings Bonds on paper for myself, kids and grandkids for the past 50 years; I am totally opposed to the replacement TD system. Not being able to literally ‘give’ a bond instrument to a person, cannot be properly replaced with the electronic maze created by our government. The loss of available funds to the USA by the regular investment of millions of citizens will more than outweigh the so-called savings of 70 million dollars over the next 5 years. Since, the mechanism for printing series I bonds still exists, TD should quickly build in a variation of their system which accommodates paper gift bonds; or just restore series EE printed bonds. I have navigated through the system and it is TERRIBLE.

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