Question; I have been a long term investor in I-Bonds especially when inflation is strong since it is inflation adjusted. But just when inflation and market choppiness should push citizens to start saving more the treasury department cut the upper limit of yearly contributions to $5000 from $30000..... Do you have any idea why they would do this now? It seem counterintuitive if they are trying to help people protect their principle in an inflationary period. Thanks! Maximia, Portland, OR

Answer: I think it's a terrible move. Here's the breakdown: Savers can now buy a total of $20,000 in U.S. savings bonds. That's $5,000 each of Series EE (the traditional savings bond) and Series I savings bonds (the inflation-indexed security you mentioned) online and another $5,000 each in paper. In sharp contrast, before the turn of the year individual savers could sock away a total of $120,000 in U.S. savings bonds.

The shift is even more significant than these dollar figures suggest. The change makes it that much harder for individual investors to hedge a substantial portion of their savings against the ravages of inflation over time. Yet many finance scholars advocate that inflation-indexed bonds should be the foundation of a long-term retirement portfolio. The big attraction for individuals of the inflation-indexed savings bonds is that savings compound tax deferred until the bonds are cashed in a 30 year period. Plus, you don't pay any commission to buy and sell savings bonds.

As you found out, the Treasury has consistently denied its message is "save less." Treasury says it's trying to redefine the program toward the small investor. That may be. Still, the timing is odd. At a time when inflation is picking up, the government sees fit to reduce the attractiveness of one of the safest inflation hedges around. The only theory that makes sense to me is that Treasury and the Administration would prefer to swell the commissions and profits of Wall Street than sell a terrific inflation hedge for individual investors. Too bad.

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