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Zero-Percent Certificate Of Indebtedness

Contributed by mm | November 20, 2004 7:10 AM PST

Treasury is counting on your navet to balance some budget deficits. If you used TreasuryDirect, you will notice besides the decade-old Series EE Savings Bond and Series I Savings Bond, a new product called Zero-Percent Certificate Of Indebtedness (C of I) is available.

Oh, Zero-Percent Certificate Of Indebtedness. What a fancy name!

Here is what the deal really is, according to the help file from TreasuryDirect:

The Zero-Percent Certificate of Indebtedness (Zero-Percent C of I or simply, C of I) is a Treasury security that does not earn any interest. It is intended to be used as a source of funds for traditional Treasury security purchases.

You may build the amount held in a C of I a number of ways:

- Follow the Funding Options directions in Manage Direct to schedule regular payroll deductions with your employer or electronic deposits with your financial institution.
- Select "Zero-Percent C of I" as the Product Type on Buy Direct to withdraw funds from a designated bank account (maximum of $25.00 per transaction).
- Redeem securities in your TreasuryDirect account to "Zero-Percent C of I" instead of a traditional bank account.

Once you establish regular electronic deposits toward the purchase of your C of I, you can use it to schedule security purchases up to five years into the future. After you've accumulated enough for the security you wish to purchase, simply select "Zero-Percent C of I" as a source of funds in Buy Direct, and the security is purchased. For your convenience, should your C of I balance be insufficient to cover a scheduled security purchase, money being deposited toward the purchase of your C of I the next business day will be used to issue your security.

There's no limit to the amount you may hold in your C of I. All purchase and redemption activity is conveniently recorded in your C of I History.

Unexpected changes in your plans? Choose the option to redeem your C of I, and the amount you enter is redeemed from your C of I and deposited into your designated bank account.

In other words, you can purchase C of I for the deemed flexibility to buy EE Savings Bond or I Savings Bond at any time, but before you do that, Treasury is not going to give you a dime of interest for your C of I holdings.

Mind you that you can always link your checking account to TreasuryDirect and schedule a number of future purchases at the same site. Even a no-interest checking account will allow you to write some checks. What's the value of C of I?

Is it an indication that balance deficit is a looming problem? I cannot judge from my expertise, but I do firmly believe this Zero-Percent Certificate Of Indebtedness has no value at all for a rational consumer.

This Post Has Received 32 Comments. Share Your Opinions Too.


Daniel Commented on June 7, 2005

I recently opened an account at treasury direct to purchase I-bonds regularly to compliment my son's 529 plan. I read the same thing and was baffled at their description. This blog entry is the only Google link that seems to address the irrationality of it. Why not put the money in a savings account until you purchase the bonds?


Dan Commented on March 24, 2006

There is a rational purpose for the "C of I", mainly for T-bills (securities with maturities of less than a year) but it could be applied to other securities as well.

T-bills are offered in 4-week, 3-month, and 6-month varieties. Let's say you want to schedule ahead of time for a 4-week bill to automatically reinvest into a new T-bill at maturity every month over the next 12 months. You make sure you have enough in your checking account to cover the first purchase, and you schedule it. It's purchased at a discount from $1000, and then a month later it's worth the full $1000.

Now, if you had scheduled this bill to mature to your checking account and for the next bill to be purchased from the same checking account, how do you know your bank won't debit you for the new bill BEFORE receiving the $1000 from the matured bill? (Answer: You have no such assurance!)

So, you could keep an extra $1000 in your checking account to ensure that an overdraft won't happen each month.

Or, you could just let Treasury Direct handle the entire transaction in the C of I, and be left with the small discounted amount (usually about $3 for a $1000 4-week T-bill) in your C of I. Then, whenever convenient for you, you can just transfer this residual amount to your linked checking account.

For savings bonds, unless you wanted to purchase a different security from Treasury Direct immediately after redeeming them, it doesn't really make sense to use the C of I. Like you said, you can just leave it in an interest-bearing account and schedule for T.D. to grab it from there.


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