FROM THE OFFICE OF PUBLIC AFFAIRS

HIGHER RATES FOR NEW SERIES EE BONDS

Series EE savings bonds purchased on or after May 1, 1997, will earn interest based on market yields for 5-year Treasury securities right from the start. The new rate for EE bonds will be 90% of the average yields on 5-year Treasury securities for the preceding six months.

MONTHLY INTEREST

Now, new Series EE bonds will increase in value every month. The announced interest rate is compounded semiannually.

BONDS CASHED BEFORE 5 YEARS

Bonds cashed before 5 years are subject to a 3-month interest penalty. For example, if you cash a bond after 18 months you will get 15 months’ worth of interest. The savings bond program encourages Americans to save for longer-term goals such as education or retirement. This rewards longer-term bond holders who then benefit from higher 5-year rates over the full life of the bond.

EASY TO UNDERSTAND

The rates announced each May and November are the annual rates that apply to bonds for that six month earning period. For example, the 6-month earning period for a bond issued in May is from May through October; for a bond issued in June, it’s June through November.

INTEREST EARNING LIFE

Series EE bonds earn interest for 30 years. This long life lets investors use savings bonds for truly long term goals like education and retirement.

TAX ADVANTAGES

Interest earned on your Series EE bonds is exempt from State and local income taxes. You can defer Federal income tax until you redeem the bonds or they stop earning interest after 30 years. This means you can plan ahead and choose when might be the best time to realize income for tax purposes. And, since your interest isn’t taxed until you redeem a bond your savings grow faster.

There are also special tax benefits available for education savings. If you qualify, you can exclude all or part of the interest earned on Series EE bonds from income when the bonds are redeemed to pay for post-secondary tuition and fees.

FACE VALUE/DENOMINATION

Series EE Bonds are sold at half their face value and are available in denominations ranging from $50 through $10,000. Because EE bond interest is pegged to market rates that change every six months, there is no way to predict when a bond will reach its face value. In the unlikely event that rates are so low that a bond doesn’t reach face value by the time it is 17 years old, Treasury will make a one-time adjustment to increase the bond’s value to face value at that time.

LIQUIDITY

You can cash Series EE bonds any time after 6 months. Most investors plan to hold bonds for longer term goals, yet they know they can get their money with interest if they need it. Of course, if a bond is redeemed before five years, a 3-month interest penalty applies.

BONDS ISSUED BEFORE MAY 1, 1997

Savings bonds and notes issued before May 1, 1997, are not affected by these changes and continue to earn interest under the terms in effect before May 1, 1997.

QUESTIONS AND ANSWERS ABOUT HIGHER RATES FOR NEW SERIES EE BONDS

Q Is Treasury issuing a new series of savings bonds?

A. No. Treasury is making the familiar Series EE savings bond a more attractive way to save by moving to a higher rate and by increasing bond values every month instead of semiannually.

Q. Why is Treasury changing the way Series EE bonds earn interest?

A. This is the latest in a series of changes to Series EE bonds that will make them a more attractive way for Americans to save for the future.

Q. When will the new rates for savings bonds take effect?

A. The new way of setting rates for Series EE savings bonds takes effect for bonds issued on or after May 1, 1997.

Q. How will interest get added to savings bonds after May 1, 1997?

A. New EE bonds will increase in value every month. The bond’s interest rate is compounded semiannually. The rate that Treasury announces each May and November will be applied to a bond for the 6-month earning period.

Q. How will Treasury set the new rate?

A. Savings bonds will earn the new higher rates right from the start. The rate is 90 percent of the average 5-year Treasury market yields for the preceding six months. Treasury will announce a savings bond rate each May 1 and November 1. The rates announced each May and November are the annual rates that apply to bonds for that six month earning period. For example, the six month earning period for a bond issued in May is from May through October; for a bond issued in June, it’s June through November. The rate that’s announced is the rate bonds will earn during the 6-month earning period.

Q. If I cash a bond during the first five years, how is the penalty figured?

A. If you cash a bond before it is five years old, you give up the last three months worth of interest. For example, if you buy a bond in May 1997 and cash it 24 months later in May 1999, you get your original investment back plus 21 months of interest. The value of the bond would be based on the announced rates applied over the 21 month period from May 1997 through February 1999.

Q. How safe is my investment?

A. Your principal and interest are backed by the full faith and credit of the United States. This means that you will always get back your original investment and the interest it has earned when it comes time to redeem your bond.

Q. How long will my bonds earn interest?

A. Series EE bonds will earn the interest for 30 years.

Q. Can I be sure my bond will reach face value?

A. Yes. Series EE bonds are purchased at half their face value or denomination. Because EE bond interest is pegged to market rates that change every six months, there is no way to predict when a bond will reach its face value. For example, a bond earning an average of 5% would reach face value in 14½ years while a bond earning an average of 6% would reach face value in 12 years. In the unlikely event that rates are so low that a bond doesn’t reach face value by the time it is 17 years old, Treasury will make a one-time adjustment to increase the bond’s value to face value at that time.

Q. What happens to the Series EE and E savings bonds I already own?

A. Nothing. Outstanding Series EE and E bonds as well as savings notes issued before May 1, 1997, are not affected by these changes. They will continue to earn interest under the terms in effect before May 1, 1997.

Q. Are there any changes to Series HH or H bonds?

A. No. Series HH bonds remain unchanged. Series HH/H bonds issued or entering an extended maturity period on or after March 1993 will pay interest at a level rate of 4%.