WASHINGTON - Small investors for years have relied on Ben Franklin's axiom, "a penny saved is a penny earned," to accumulate wealth in small increments. But dealers may have turned that axiom on its head and into more than $1 billion dollars of profits by rounding up the price of municipal bonds charged to retail investors - often by just a few pennies, according to a recent study.

In her doctoral thesis, economist Dan Li, now working for the Federal Reserve's division of research and statistics in Washington, found that in the secondary market more muni bond prices tend to be rounded up to even dollar amounts rather than halves and quarters of dollars. The bond's true market value is a rougher number below the price offered to the investor, according to Li. Her research indicates that by rounding, dealers can charge retail investors as much as 45 cents per $100 par bond, not including the transaction fee.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.