What's behind new savings bond limit?

Normally, I use this space to answer reader questions. However, today I'd like to discuss an issue that affects many American savers.

Beginning Jan. 1, the Treasury changed its annual limit on purchases of U.S. savings bonds. The new annual limit is $5,000 per Social Security number, but the limit applies separately to Series I and Series EE savings bonds, and for paper versus electronic bonds.

So, an individual can invest a total of $20,000 in savings bonds annually, as shown in the following table:

New savings bond limits for an individual

Issue price Investment Face value $ 5,000 Series EE savings bonds in paper form $ 10,000 $ 5,000 Series EE savings bonds in electronic form $ 5,000 $ 5,000 Series I savings bonds in paper form $ 5,000 $ 5,000 Series I savings bonds in electronic form $ 5,000 $ 20,000 Annual purchase limitation $ 25,000

The limitation is based on the first-named co-owner, so a couple could vary who is listed as the first-named co-owner and double the annual investment to $40,000.

The limits are based on the issue price of the securities. Series I bonds are issued at face value. Series EE bonds are issued at one-half of face value in paper form but at face value in electronic form. The SmartExchange program lets you convert bonds in paper form to bonds in electronic form in a TreasuryDirect account.

This is quite a change from the previous limit of $30,000 per series in both paper and electronic form, as shown in the table below:

Old savings bond limits for an individual

Issue price Investment Face value $ 30,000 Series EE savings bonds in paper form $ 30,000 $ 30,000 Series EE savings bonds in electronic form $ 30,000 $ 30,000 Series I savings bonds in paper form $ 30,000 $ 30,000 Series I savings bonds in electronic form $ 30,000 $ 120,000 Annual purchase limitation $ 150,000

The press release announcing the change points out:

• The reduction from the $30,000 annual limit in effect for both series since 2003 was made to refocus the savings bond program on its original purpose of making these nonmarketable Treasury securities available to individuals with relatively small sums to invest. Approximately 98 percent of all annual purchases of savings bonds by individuals are for $5,000 or less.
• Savings bond purchases have been subject to an annual limit since Series E bonds were first issued in 1941. Over the years, limits have been adjusted by the Treasury Department several times and have ranged from a low of $3,750 (at issue price) for Series E bonds from 1941 through 1947 to the $30,000 (issue price) limit that most recently applied to both Series EE and Series I bonds. The limit was last set at $5,000 (issue price) in 1973.