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Why Lower The Savings Bond Limit to $5,000?

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Last year, the Treasury Department limited the amount of Series I and Series EE Savings Bonds that a US Citizen could purchase in a single year to, effectively $20,000 (TreasuryDirect release). The limit had been $30,000 in paper certificates and $30,000 in electronic certificates for each the Series I and Series EE bonds, meaning you could feasibly purchase $120,000 in savings bonds ($30k electronic Series I, $30k paper Series I, $30k electronic Series EE & $30k paper Series EE) a year ago. The current limit not drops the total amount of savings bonds you can purchase to $20,000 a year (which is still a lot for most Americans).

Why? The stated reason was to “refocus the savings bond program on its original purpose of making these non-marketable Treasury securities available to individuals with relatively small sums to invest.” That is not achieved by lowering the maximum limit, that was achieved when TreasuryDirect allowed you to purchase electronic bonds as low as $25 each.

Another reason was that “Approximately 98 percent of all annual purchases of savings bonds by individuals are for $5,000 or less.” Again, that’s not a legitimate reason to lower the maximum limit. The “it won’t affect that many people” defense won’t work for a lot of things, I don’t see why it’s viable here.

I suppose you could make the argument that lowering the maximum will help those with smaller sums if there was a limited supply of US Savings Bonds. However, if you take a look at our growing debt and growing deficit, you’d be hard-pressed to make the argument that US debt is in short supply.

So why? I’m at a loss and I don’t understand it well enough to make much of an informed guess. I would’ve expected the US government to want to be indebted to its own citizens, rather than foreign interests, so perhaps there is something else going on? I tried searching online but didn’t find any editorials or other insights into why the rate was (really) lowered. Anyone have any thoughts?

Incidentally, the Treasury announced the new rates and the fixed portion of the Series I Savings bond dropped from 1.2% to 0.00%!

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16 Responses to “Why Lower The Savings Bond Limit to $5,000?”

  1. cheo reom says:

    Jim, I’m clueless behind the reasoning too but, like you, I was curious how low the Treasury would drop the fixed rate…….and they can’t go much lower than that!!

    I’m glad I locked in that rate two days ago (or at least I think so…I don’t even have an application to prove for it really)

    I’m anxious to get those paper bonds delivered to make sure my purchase went through, or else I don’t know how to argue just with a generic transaction receipt that says “Bonds Purchase.” :(

  2. jim says:

    I’m a little concerned about it too but there isn’t much we can do about it, the whole process seemed just so disorganized. Oh well, I guess we’ll both find out in three weeks plus…

  3. Anonymous says:

    May well be sooner than 3 weeks plus. I bought mine at Wachovia on the 24th and they came today , May 1, dated April 28

  4. Todd says:

    Any chance that there is a preference to sell debt to people who won’t exercise the debt’s tax advantages ? Just a thought.

  5. Savings bonds encourage saving. But spending is what drives the economy. So… In addition to aribtrarily sending people checks, why not take steps to discourage saving?

  6. David Goldsmith says:

    I can only think of one explanation that makes sense to me.

    Those entrusted with the responsibility of deciding such things (The Deciders) were influenced, somehow, to get the Treasury out of competition with special interest groups. Corporations and commissioned agents are willing to let the government ‘bottom-feed’ on “individuals with relatively small sums to invest,” while they do their business with the rest of the market.

  7. Derek Heidbrink says:

    The reason that the savings bond and I bond purchases has been restricted is due to some tax planning issues.

    Certain capital gains and qualified dividends (i.e., adjusted net capital gains) are taxed at 15%, or 5% for taxpayers in the 15% or 10% tax brackets. Pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) and extended by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), the 5% rate drops to 0% from 2008 to 2010. In 2011, these rates will sunset and revert to the pre-2001 rates of 15%, 28%, 31%, 36%, and 39.6%.

    Therefore if you are a retiree or prospective retiree, you would want to spend the money out of your taxable accounts if possible during this time. Where savings bonds and I bonds come into play is that the interest is deferred and would not count against your income for these years, allowing you to maximize the use of the capital gains window.

    Also see this <

  8. Rob P. says:

    I believe this is just a marketing campaign. Foreign buyers are drying up because of the dollar’s negative real value from their perspective. (Everyone’s inflation rate is running higher than ours… very suspect), the Government just dumped a whole lot of treasuries on the market by way of bailouts and “swaps”, so they are needing someone to pick up their debt! Woo hoo! The average US citizen to the rescuse. As they said, “It won’t affect many” Well no kidding, as if Americans were much savers at all to start with! With our negative real rate also, (i.e., inflation greater than short term treasuries yeidl and almost long term) I can not believe any sensible investor would plop more than a few grand down to start with.

  9. Bubba says:

    I believe that the treasury is concerned about the possibility of a currency collapse and does not want to be on the hook for paying out a rate that would equal that hyper inflation rate.

    In light of the Feds recent policy of throwing hundreds of billions into the financial system and the treasury probably going to go for another trillion or so we’re likely to seek the 1929 German Mark look like a stable currency compared to the US dollar of the near term future.

  10. Kathy says:

    They restrict American citizens…. and yet they’re freaking out trying to get the Chinese to invest in them. Why not just take the restrictions off the Americans? Is there money better than our money somehow?

  11. Max says:

    They would rather we spent our money than saved it to keep the consumer driven economy afloat. But, since it’s not politically correct to encourage that, the government comes up with the reasons you cited above.

    • Ben M says:

      Yes. This is the reason. Spending, not saving, will strengthen the U.S. economy. By enacting these changes, the Treasury is essentially discouraging saving.

  12. Kenneth Leber says:

    Why the maximum limit, and why keep lowering the limit? In essence every time the limit is cut you have to increase the number of investors to continue the same amount being invested. This is a very subtle means of wealth redistribution, a primary objective of the current administration.

  13. Kenneth Leber says:

    It is getting worse. Effective Jan 1, 2012 paper bonds are being eliminated, cutting by 50% the maximum purchase permitted per individual on EE and I Bonds.
    This all came about under President Obama. You might want to remember that come Nov 2012.

  14. MD says:

    You can still buy paper bonds with your IRS refund if you get one. Search IRS.gov for info.

    I just realized that with the inflation rate where it as (and bound to go higher with what the fed is doing, or not doing), I-bonds are the best income-producing investment right now.


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