My Personal Finance Journey

Personal finance observation, musing and decisions in a journey toward financial independence by 2020 with at least $3 million.


By Topics

Overall:
0. About (10)
1. My Progress (139)
2. Car & Home (107)
3. Credit (138)
4. Banking (33)
5. Saving (49)
6. Investing (308)
7. Taxes (89)
8. Spending (74)
9. Misc (97)
A. Archive (49)



MONTHLY ARCHIVE

Feb 2014 (3)
Jan 2014 (6)
Jan 2012 (1)
Apr 2011 (1)
Mar 2011 (1)
Feb 2011 (1)
Jan 2011 (1)
Dec 2010 (1)
Oct 2010 (1)
Sep 2010 (1)
Aug 2010 (1)
Jul 2010 (1)
Jun 2010 (1)
May 2010 (1)
Apr 2010 (1)
Mar 2010 (6)
Feb 2010 (2)
Jan 2010 (7)
Dec 2009 (3)
Feb 2009 (4)
Jan 2009 (8)
Dec 2008 (1)
Jun 2008 (2)
May 2008 (2)
Apr 2008 (5)
Feb 2008 (3)
Jan 2008 (15)
Dec 2007 (32)
Nov 2007 (6)
Oct 2007 (8)
Sep 2007 (9)
Aug 2007 (24)
Jul 2007 (2)
Jun 2007 (1)
May 2007 (3)
Apr 2007 (4)
Mar 2007 (4)
Feb 2007 (13)
Jan 2007 (6)
Dec 2006 (3)
Nov 2006 (7)
Oct 2006 (7)
Sep 2006 (6)
Aug 2006 (4)
Jul 2006 (10)
Jun 2006 (1)
May 2006 (3)
Apr 2006 (2)
Mar 2006 (6)
Feb 2006 (6)
Jan 2006 (3)
Dec 2005 (1)
Nov 2005 (9)
Oct 2005 (8)
Sep 2005 (13)
Aug 2005 (25)
Jul 2005 (16)
Jun 2005 (17)
May 2005 (19)
Apr 2005 (20)
Mar 2005 (24)
Feb 2005 (23)
Jan 2005 (36)
Dec 2004 (40)
Nov 2004 (34)
Oct 2004 (17)
Sep 2004 (21)
Aug 2004 (59)
Jul 2004 (37)
Jun 2004 (31)
May 2004 (29)
Apr 2004 (52)
Mar 2004 (49)
Feb 2004 (49)
Jan 2004 (31)
Dec 2003 (48)
Nov 2003 (52)
Oct 2003 (29)
Sep 2003 (8)
Aug 2003 (5)
Jul 2003 (2)
Jun 2003 (2)
May 2003 (5)
Apr 2003 (2)
Mar 2003 (2)
Feb 2003 (3)
Jan 2003 (29)



 

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 3 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.


mylosangelesca.us Commented on March 29, 2006

Simulated diamonds have long been held in disfavor, because of the assumption that simulation necessarily implies inferiority myproservice.com. So it might come as something of a surprise that many professional gemmologists are now selling simulated diamonds alongside the real thing. Many of mans finest creations have been born in the lab, and moissanite diamonds are no exception. mylosangelesca.us http://www.mylosangelesca.us/links/Shopping.html


Add Your Comments










Remember personal information?




(It will take a few moments for your comment to be published. Please do not close the window until then.)


Read More ... 311 Posts In The Same Category










This page was last rebuilt at February 09, 2014 08:25 AM PST. (475 Words)
 

RSS FEED





PERSONAL FINANCE BLOGS I READ

Consumerism Commentary
Get Rich Slowly
My Money Blog
All Financial Matters
The Simple Dollar






.



Copyright 2003-2014, PFBlog.com. All Rights Reserved. (Privacy Policy)