Forever Stamps - a good investment?
Forever stamps were offered in the spring of 2008 with the promise they are good forever, and you'll never have an increase in the first class letter rate (up to 1 ounce) as long as you use those stamps.
Wow, that sounds like a good thing for all us frugal living folks out there that are trying to save money. I know increases in postage are measured in pennies, but anything is helpful, right?
Let's take a look at this and see if they really are all they're cracked up to be.
Is it wise to stockpile a bunch of them as a hedge against the rising cost of postage? Will I save considerable money buying these stamps?
Unfortunately, the answer to each of these questions is NO. They are at best another postage stamp, and in the worse case they are a scam. It's a scam that is likely to revisit us sometime again soon, especially if it makes money for the postal system this first time around.
Here is the reasoning behind the big NO when it comes to buying these stamps. Let's look at some facts and assumptions first, then let's do the math.
To illustrate this issue, Sam the Stamp Buyer will make comments and ask questions in brown. And, Clair, your host of this site will give you answers in blue.
Let's see how this conversation goes.
Facts and Assumptions
Postage stamps rise in price every year.
Not really that often. In 1968, postage stamps were 6 cents. 40 years later, postage stamps are 42 cents. That's less than a 1 cent increase in postage each year. That means in five years our postage rates will probably be 47 cents, or possibly less.
I'll buy a few stamps and save them, and that will save me money in a few years.
Yes, but not much at all. If you want to save money on postage, you'll have to buy a large quantity of stamps. Let's say you want to save money over the next 1 cent postage stamp increase, whenever that comes. If you want to save 100 dollars, which isn't much at all, that means you'll have to buy 10,000 stamps now and wait for the 1 cent increase.
So the more I buy, the more I save?
Yes, and no. Our cost and savings is all a matter of scale. The more you buy, the more it costs out of pocket now, and the more you'll save later. Or, so it seems.
The longer you wait, the greater the savings because the price of stamps will rise every year or two (if that). It also costs you more, because the longer you wait, the longer your investment is in someone else's hands, and it isn't working for you by getting your letters mailed.
What do you mean it costs me?
Your money held over the long term works for someone else because they make interest on your money, not you. Your loss is the interest your money could have been making, even if no one else makes a dime on the money you've given them up front.
That means they are making interest on my money instead of me.
Exactly. Let's target 5 years as our timeline since we can all imagine 5 years down the pike. Let's be conservative by saying that postage stamps will increase in price 1 cent per year. They probably won't, but that will give us a more favorable picture for buying the forever stamps. In other words, it will be more favorable to our goal of "saving money" on postage.
A purchase of 10,000 forever stamps will cost you $4,200. That's a lot of stamps, and that's a lot of money to tie up in your future letter mailing.
Over 5 years, at a modest 3% interest rate, your investment lost you $126 for just the first year in interest you didn't make.
At the end of 5 years, you'll still have the stamps, and let's suppose the postal rates have climbed to 47 cents. Now, with each letter you mail, you'll be saving 5 cents.
Let's say you mail 4 letters a week. That's about 200 stamps a year. That's a cost of $94 and a savings of $10 the first year.
Whoa! Wait a minute. I lost $126 in interest to the postal service in just the first year in order to get my money-saving cache of stamps. That's more than my cost of postage and savings in year #6. What am I doing this for anyway?
That's my point exactly. Buying anything more than what you need, in the interest of making an investment in the future, is a very poor investment. It's like playing the lottery. The folks at the lottery can make more money in interest than they ever pay out in winnings, so they always come out on top, and we're always the ones paying for it.
Well, I guess I won't be buying forever stamps.
Go ahead, but just don't stock up on thousands of stamps, because it won't do you any good at all.
It's Worse Yet
Let's suppose you get tired of waiting to use your forever stamps and you decide to start mailing packages with them when the first class rate for a standard letter is 50 cents. Your forever stamps will only be worth 42 cents, exactly what you paid for them, and they won't buy you another 8 cents worth of postage on a package like they will on a letter.
Ouch! I'd be stuck with lots of one ounce letter stamps that wouldn't be of any special benefit when mailing packages. For that matter, they wouldn't be of any use for a letter that weighs more than one ounce.
That's right, forever stamps are only good to mail a one ounce letter. Anything over that weight would require additional postage. They will only be as useful as they were many years ago - they mail a standard letter.
So, the forever stamps aren't a good deal at all. They are really only as good as any other 42 cent stamp that you would usually buy.
But, I'd probably have a lot of rare stamps that collectors will want because this is the first time ever that such a stamp has been offered.
Not exactly. It is a regular issue stamp, so it isn't rare at all, and it will likely be worth only what any other 42 cent stamp will be worth years from now. It's not a misprint or limited edition stamp.
It seems clear to me that the idea behind the forever stamp is to get people to stock up, so they printed hundreds of millions of them. You'll make way more money by keeping your money in the bank.
Okay, so there you have it my frugal living friends; the forever stamps are a gimmick to say the least. I think they're a scam, so keep your money in your pocket. Better yet, keep it in the bank.
Done with Forever Stamps, take me back to Frugal Living Tips