TreasuryDirect Electronic Savings Bond Purchase Limit Now $10,000 Annually

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The Treasury announced today 1/4 that the annual purchase limit for electronic U.S. savings bonds bought at TreasuryDirect is now $10,000 per series, per person. I’m not sure why they waited so long to decide this, given that it’s been six months since they announced that they would will no longer sell paper U.S. savings bonds through banks and other financial institutions in 2012. Thanks to reader JR for the heads up.

Under the new rules, an individual can buy a maximum of $10,000 worth of electronic savings bonds of each series in a single calendar year, or a total of $20,000. Since 2008, investors could buy a maximum of $5,000 in each series and in each form (paper or electronic). So a single owner could buy $20,000 in one year. As of January 1, 2012, paper bonds are no longer being sold through financial institutions. With today’s announcement, the total amount an individual can purchase in online savings bonds in one calendar year is $20,000. An investor still can purchase up to $5,000 annually in Series I paper savings bonds using his/her tax refund and IRS Form 8888.

This also means that you could theoretically buy $10,000 electronically and $5,000 in paper bonds in 2012. However, another weird glitch on IRS Form 8888 [pdf] is per the directions, the total amount bought on that form cannot exceed $5,000 – whether you file single or married filing jointly. So a married filing joint couple can only buy $5k between the both of them, while two single filers can get $5k each. Boo.

The Finance Buff has a nice post about what he calls the backdoor to paper savings bonds regarding overpaying your taxes on purpose. Basically, you do your taxes, then file an extension with payment included in order to make sure you have a $5k refund amount, and shortly afterward file your taxes. Supposedly tax software like TurboTax supports Form 8888, so it’s not even necessary to file using paper forms.

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  1. Happy to see that they have at least not allowed the annual limit to decrease as it seemed beforehand. There has been some public pressure on them led by the likes of Zvi Bodie, and I encourage everyone to keep the pressure on. Write your Congress members and President Obama. This seems like an anti-Wall Street, Occupy Movement no-brainer, and I’m surprised at least a few politicians are not more vocal about it.

  2. So can I buy max 10k Ibonds ? Does that 11 month still favorable compare to bank CDs or saving account ?

  3. @Donald, Seriously? You think the occupy crowd is concerned about the annual limit on savings bonds? I would honestly bet that most of them don’t own any, much less know what they are.

  4. Jonathan – Do you max out your 20k allotment every year?

  5. Any guesses on how the 6 months following this current period of 3.06% interest rates looks? To get a 3% YTM on a secondary market CD requires going out until 2021.

  6. I am very ignorant when it comes to buying treasury bonds… Are you telling me that you can get a > 3% yield every 6 months on these bonds?

    Are they zero coupon bonds? How long does one have to hold them?

    Sorry for all the lazy newbie questions.

  7. Here are all my posts about savings bonds, in reverse chronological order:

    Future CPI is anyone’s guess. In the worst case of zero inflation – though I think inflation will be higher – so the annual rate is still better than comparable bank CDs. Keep in mind, a 5-year TIPS bonds is around negative 0.86% right now – with the I-Bond you get a zero real yield which is sadly rather attractive over such a holding period. Inflation protection is at a premium right now.

  8. The first two months that factor in to next reset (Nov. and Dec. published numbers) have shown very slight deflation, indicating that the next reset is on its way to a 0% yield. Keep in mind, this is only 2 of the 6 months that go into the calculation and it certainly could go up, but I would not bank on a return as high as the last two periods given the first two readings. Even so, if you buy before April and get the 3.06% yield for the first 6 months, and the worst case scenario (0% yield) for the next six month, your weighted return for the required 1 year holding period is ~1.53%, which blows any 1 year CD out of the water. I currently get a slightly return in a rewards savings account, but those appear to be a slowly dying product.

    Jonathan, I would be curious to hear your thoughts…say we do enter into several periods of negative or minimal (<0.5%) inflation. I know you have a significant amount of your holdings in I-Bonds. At what point do you think you would be driven to liquidate some of those (if at all)?

  9. Do you need to file an extension to overpay?

    Can one not pay online from a checking account at without needing to file an extension and then claim the 5000 as I bonds via Form 8888 at time of filing?

  10. @John – I haven’t done an EFTPS payment in a while, but I believe you have to choose a “form” that is attached to your payment. Usually, this form is just the 1040-ES form for estimated tax payments for 2011 or 2012. But if it’s already 2012 and past the January 15th deadline for Q4 2011 payments, I think you’re left with the extension form as an option. I could be wrong, I’m just writing this off the top of my head.

    The important part is that you want to designate your payment to be applied towards 2011 taxes.

  11. I was wondering about the early cash in penalty on these which I think is “the last 3 months of interest”. If the rate goes to 0 for a 6 mo term (if inflation went to 0 or negative), would the “3 months interest” be one of the 3 months of 0 interest as well?

  12. If I open a minor account for my son, and contribute 10K on his behalf, can I also give him addition 10K by giving him gift bond to bring his account to 20k a year?

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