Yes they do. By law, the assets of the Social Security program must be invested in interest-bearing government securities or in securities guaranteed by the government as to both principal and interest. The Trust Funds hold a mix of short-term and long-term government securities. The Trust Funds can hold both regular Treasury securities and "special obligation" securities issued only to federal trust funds. All the securities in the Social Security Trust Funds are special obligations.
The rate of interest on special issues is determined by a formula enacted in 1960. The rate is determined at the end of each month and applies to new investments in the following month.
The numeric average of the 12 monthly interest rates for 2007 was 4.656 percent. The effective interest rate (the average rate of return on all investments) for the OASI and DI Trust Funds, combined, was 5.3 percent in 2007. This higher effective rate resulted because the funds hold special-issue bonds acquired in past years when interest rates were higher.
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