Savings bonds interest rate
As we all know, bond is a type of loan availed by a company or government agency etc from public to fulfill the financial requirements. All the bonds are repayable at fixed date. The bond bears interest at pre-determined rates for a fixed time and thus, constitutes one of good sources for getting guaranteed returns. Savings bond is one of different types of bonds that are provided by various governments. Thus, when a person buys savings bond from the government, it implies that he is making loan to the government where the government shall provide him the return for a fixed period at fixed rate.
Governments of various countries all over the world issue savings bonds and Federal Government in United States is one of them. U.S savings bonds are available easily and any person can buy it. One of various features of savings bonds that attract a person to buy such bonds is the interest rate on these bonds. The rate at which the bonds bear interest or provide interest is called as the savings bond interest rate. These rates usually fall and rise from time to time and since there are many types of savings bonds issued by the government, the interest rates on the savings bonds also vary. As far the current interest rates on the U.S bonds are concerned, they depend upon the bond series. The current interest rate of U.S savings bond is valid for the bonds that are purchased between 1st May 2007 and 31st Oct 2007. The interest rates are applied on the savings bond as on the date of purchase of bond and thus, the interest rate on the U.S savings bonds purchased on 30th April 2007 is different from the interest rate as applicable on the savings bond purchased on 1st May 2007. In United States, the U.S savings bonds are provided at 1/2 the price mentioned at the face of savings bond. Thus, a $100 savings bond would be bought for a price of $50 only.
Presently, the current interest rates of U.S savings bond varies from.5% to 3.4%. The series EE of the U.S savings bond bears an interest rate of 3.4% and the series I savings bond bear an interest rate of 3.74%. The Series I U.S Savings bond Fixed Rate bear an interest rate of 1.3% whereas the U.S savings bonds pertaining to series HH provide an interest rate of 1.5%. As mentioned earlier also, the interest rate as applied on the savings bond depends upon the date of buying. Presently, the interest rate applicable pertains to the rates earmarked for the period May 05 to present. One of the various U.S savings bonds available in the market is the EE series savings bond and this savings bond carry the interest rates for a period of 30 years. It is important to note here that the interest rate on the different types of saving bonds is posted on monthly basis. There are many other aspects regarding saving bond interest rates that require to be understood by all the persons that have bought savings bond. In the first 20 years of buying the saving bonds, the interest earned by a U.S saving bond would be reckoned at fixed rate.
This interest rate is announced at the start of the savings bond period. All the U.S savings bond that are bought in this period would earn the interest rate at fixed basis for the first 20 years and it would be based on the yield of a 10- year Treasure Note. It is important to understand that if the face value of the saving bond is not attained in the first 20 years, there would be a one-time adjustment that would be made by the U.S government, so that the total money redeemed commensurate with the face value provided on the savings bond. So far the applicable interest rate for the remaining 10 years of savings bond is considered, the U.S government has the power to change the interest rate. If a person wants to take the benefit of interest rates and wants to redeem the savings bond purchased, he can do it after one year has passed. However, penalty equivalent to the 3 months interest is levied when the U.S savings bond are cashed out by the bearer in the first 5 years of savings bond life.
Apart from above, there are some other aspects that require to be understood properly. First is the earning rate. In case of U.S. savings bond series I, the interest rate is basically the addition of two separate interest rates. These are called as the fixed interest rates and inflation rates. The fixed interest rate of the U.S savings bond is normally announced in the months of May and November and these interest rates are applicable to all the U.S savings bonds that are brought into circulation during the first six months of the announcement date for the interest rates. The fixed interest rate portion of savings bonds, as announced, remains same for the whole life of bond. This allows many people in United States to go for the benefits of high interest rates of the saving bonds. The other type of interest rate applicable to the savings bond interest rate is the inflation rate.
These rates are announced in the months of May and November every year and the inflation rate is based on the CPI-U or Consumer Price Index for all Urban Consumers. This rate is added to the savings bonds fixed interest rate mentioned above to determine the effective earning rate of savings bond every 6 months. The dates of fixing the fixed interest rates for the I U.S savings bond are 1st May and 1st November. For the period May 2007 and Oct 2007, the overall or composite interest rate, i.e. the fixed interest rate added to the inflation rate, were determined by taking 1.3% towards the fixed interest rate and 1.21%, towards the inflation rate, for series I savings bond. The rates mentioned above are used in a specific formula and is not the simple addition of two rates. Take for example, the overall interest rate of series I savings bond as applicable in the period mentioned above is not 2.51% but it is 3.74%.
Other Articles