Minimum floor of savings bonds will be changing


October 23, 1994|By SUSAN BONDY | SUSAN BONDY,Creators Syndicate

Q: In September 1986, when I heard that the U.S. Treasury Department was going to lower the then-minimum floor of 7.5 percent, I bought $20,000 of Series EE savings bonds. A month later, the minimum rate went down to 6 percent. My question is this: Now that the bonds will be maturing, if I continue to hold them past maturity, will the old 7.5 percent floor still apply?

A: You sure made a smart move back in '86. To answer your question, that 7.5 percent minimum interest is in effect during the first 10 years and in your case will continue until September 1996. The life of your Series EE bonds is 30 years from date of purchase, but in the 10 years after 1996, your bond will have a new floor.

This floor will be the minimum interest rate as of September 1996. Although you are correct in saying that in November 1986 the minimum rate dropped to 6 percent, in March of 1993, it dropped again to 4 percent -- the current floor in effect.

However, keep in mind that the interest on EE bonds is the higher of either the minimum floor or 85 percent of the average yield on five-year Treasury notes during the previous six-month period. Therefore, the yield you get may very well be above the floor rate.

For your information, the current yield on five-year Treasury securities is about 7 percent. If the average rate stays the same, the EE bonds with the 4 percent floor would earn just under 6 percent for the five years. Holders of bonds with a 6 percent or 7.5 percent floor would earn those minimum rates.

Q: I have several partially filled books of U.S. savings stamps. My questions are: Do they pay interest? If so, how much? If not, what can be done with them?

A: Savings stamps do not pay any interest, so I suggest you either cash them in or exchange them for Series EE savings bonds. This can be done at your local bank, the Federal Reserve Bank, its branches or the Bureau of the Public Debt, Parkersburg, W.Va. 26106-1328. Sale of savings stamps was discontinued after June 30, 1970, so you must have been holding on to these stamps for at least 24 years.

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