Just keep my money! Part I - The potential for a refund-driven Savings Bond Program

In a related piece**, we argue that the savings bond program can be revitalized to help families—especially low to moderate income households—save. Savings bonds are attractive savings vehicles with widespread consumer awareness. One specific suggestion is to allow recipients of federal tax refunds to easily direct some of their refunds to the purchase of savings bonds; in effect to ask the Treasury to “just keep some of my money.” In March and April 2006, in conjunction with H&R Block, we conducted a “dry run” of this type of refund-based savings program. First, while the results are very preliminary, untapped demand for bonds might be strong. Given that capturing 1% of tax refunds would increase gross bond sales by over 25%, even a small level of refunds can materially boost bond sales, and more importantly, support family savings. Second, without a change in practices of either the IRS and/or the BPD that create impediments for bond-buyers, a refund-based bond program will likely fail. However, a few changes in government practices could simplify this process considerably. While policymakers must be mindful of the costs of administering any program, a refund-based savings bond program might enjoy certain attractive marketing and administrative economies.