 Figuring
out savings bond interest rate
|
 Dear
Dr. Don,
Please help me if you can! I have a Series EE U.S. savings bond
issued in February of 1994 that has an interest rate that keeps
changing -- from 6 percent to 1 percent and now is at 2.6 percent
(yikes!) What gives? None of my other bonds have variable interest
rates. Why is this happening?
-- Sopie Savings
 Dear
Sopie,
I've been replying to a lot of savings bonds
questions lately, so I really wasn't looking to take on another
question. Yet yours intrigued me.
Over the years, the Treasury Department has changed
how interest rates are established for the Series EE savings bonds
so the interest rate you currently earn on a bond depends on when
you bought it. Here's what the Bureau of Public Debt's Web
site has to say about the interest rate paid on the bond you
own purchased in February of 1994:
Bonds with issue dates of March 1993 through April
1995 have a guaranteed minimum rate of 4 percent per year, compounded
semiannually. These bonds have an original maturity period of 18
years. Once they've been held for five years, they become eligible
for market-based rates.
The market-based rates comment deals with how the
interest rate on your bond varies over time base on the average
yield on the five-year U.S. Treasury note.
The site also lets you download earnings
reports on your savings bonds. I downloaded the most recent
report to see that your February '94 savings bond is currently earning
3.62 percent and has earned 4.34 percent since issuance. I'm not
sure where you're getting your numbers but the 2.6 percent number
doesn't match up with what I'm seeing on the earnings report and
in using the Savings Bond Wizard.
I recommend downloading the Savings
Bond Wizard to track your portfolio of savings bonds. If you've
been deferring the federal income tax due on the interest earnings,
I don't think there's any need for you to redeem the bond and invest
elsewhere, even though the current earnings rate is less than the
4 percent minimum. Unless the redemption can qualify for the savings
bonds for education program, you'll owe that tax when you redeem
the bond. Keep it invested instead in a guaranteed 4-percent return.
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