 A
savings bond mystery revealed
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 Dear
Dr. Don,
Why are electronic Series EE bonds sold at face
value while the paper bonds are sold at one half of the face value.
Is it better to buy paper bonds?
I read some of your articles and opened an account
at Treasury Direct.
-- Robin Ruminate
 Dear
Robin,
I didn't know why the electronic Series EE bonds
are sold at face value while the physical (paper) bonds continue
to sell at half the face value of the bond, so I asked the Bureau
of Public Debt to explain it to us. Here's the reply I received
from Stephen Meyerhardt, a Public Affairs Officer with the Bureau:
"As your reader indicates, paper EE bonds are sold
at a 50 percent discount so that a $100 bond, for example, costs
$50 and gradually grows with accrued interest to (and eventually
beyond, if held long enough) its face value. Throughout the 60-plus
years discounted savings bonds have been sold, starting with the
Series E bond in 1941, this has led to a whole host of questions
from owners -- why isn't the bond worth the value printed on the
bond (particularly a problem for people who receive bonds as gifts),
when will it be worth face value, what's it worth now, etc.
"Establishing the electronic TreasuryDirect system
gave us an opportunity to solve this problem. Electronic EE bonds
are purchased much as if you are making a deposit to a savings account.
Purchases are made for a minimum of $25 (the same amount as the
smallest denomination in the paper world, the $50 bond), but can
the bought in any amount above that, to the penny, up to $30,000
-- the annual purchase limitation. Interest accrues on the amount
deposited -- just as it does in the paper world, and at the same
exact rate. The only difference is that you are not limited to denominations
-- you can purchase in whatever amount you choose, subject to the
limits mentioned above. Your TreasuryDirect account also provides
you with a current value, so you always know what your holdings
are worth. This also facilitates partial redemptions -- very difficult
in the paper world -- so that any individual holding can be partially
redeemed so long as at least $25 remains in the account. (Keep in
mind here that the issue date -- month and year -- is key to determining
interest rate, so each purchase is treated as though it is a separate
"bond.") The net result is both greater flexibility and
greater clarity for owners."
Meyerhardt's response makes sense to me. I think electronic is the
way to go, unless you're buying the bonds as a gift. Greater flexibility
and more transparency make the electronic version of the Series
EE savings bond held in a Treasury Direct account a great way to
hold and add to your savings bond portfolio. After you open a Treasury
Direct account, the Treasury, by invitation only at this time, may
offer an account holder the option to convert any paper savings
bonds they own into electronic savings bonds under its Smart
Exchange program.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "Financing
a home," "Saving & investing" or "Money."
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