Sav PDP 0035
Sav PDP 0035
Sav PDP 0035
Answer: All Series E/EE savings bonds issued before November 1982 and all savings notes issued before
November 1982 have reached final maturity and, therefore, have stopped earning interest.
Answer: Interest rates were set in different ways at different times. Most recently, interest was based on
market-based investment yields or guaranteed minimum investment yields. In this scenario,
Treasury calculated the value of your bond or note both ways and gave you the better overall return.
Question: When did Treasury start using the market-based investment yield and guaranteed minimum
investment yield?
Answer: Treasury first offered market-based rates for savings bonds in November 1982. Bonds and notes
outstanding at that time were included in the program if the owner continued to hold the bond or note
for at least five years from the date it first increased in value on or after November 1, 1982. Series E
bonds which were 40 years old before November 1987 were not eligible for the program.
Question: What do you mean by the date it first increased in value on or after November 1, 1982?
Answer: Bonds generally increased in value every six months. An eligible bond or note that increased in value
each April and October, for example, entered the market-based rate program on April 1, 1983, and
had to be held until April 1988.
Question: You said generally increased in value every six months. Were there exceptions?
Answer: Yes. When a bond or note was first issued, it was given an original maturity period. For some Series
E bonds, the original maturity period was such that the last interest earning period in original maturity
was less than six months. For example, the last interest earning period for a bond with a June 1972
issue date was four months because the original maturity of the bond was 5 years, 10 months. This
bond increased in value on December 1, 1977 (5 years after issue) and again on April 1, 1978 (5
years and 10 months after issue). NOTE: If issued before November 1982, either a Series E bond, a
Series EE bond, or a savings note has reached final maturity and no longer earns interest.
Question: What were the original maturity periods for my bonds and notes?
Answer: The original maturity periods are shown in the Original Maturity Tables on page 5.
Question: What is a market-based investment yield? How was it applied to my bond?
Answer: Each May 1 and November 1, Treasury determined an average of five-year Treasury security yields
from the preceding six months. Each time your bond was due to increase in value, Treasury re-
calculated the market-based redemption value anew from the date it first increased in value on or after
November 1, 1982. The average of the Treasury security yields for each six-month earning period
since were added together and divided by the number of semiannual periods since that date. The
result was multiplied by 85% and rounded. This one rate was applied for each semiannual period
since the date of the first increase in value on or after November 1, 1982.
Now lets look at how the June 1994 market-based value was determined. In the 11 years between
December 1982 and June 1994, there were 23 semi-annual interest earning periods. For each
earning period, there is an applicable five-year Treasury security yield. To begin determining the
market-based yield for the June 1994 market-based value of your bond, the 23 average Treasury
security yields were added together and divided by 23. The result was multiplied by 85% and then
rounded to the nearest one-fourth of one percent (.25%). The result was the market-based investment
yield. The market-based worth of your bond on June 1994 was calculated by applying this yield to the
entire 11 years.
Two years later, to determine the market-based investment yield for your bond for June 1996, four
additional applicable average five-year Treasury security yields were added to those for the other 23
six-month interest earning periods and divided by 27 to obtain the average. The result was multiplied
by 85%, but this time the result was rounded to the nearest one-hundredth of one percent (.01%). The
market-based worth of your bond for June 1996 was calculated by applying this yield to the entire 13
years.
Question: Why was the rounding to .25% in some cases and .01% in others?
Answer: During maturity periods that began before May 1989, rounding of the market-based investment yield
was to the nearest one-fourth of one percent. During maturity periods that began on or after May 1,
1989, rounding was to the nearest one-hundredth of one percent.
Question: Where does the guaranteed minimum investment yield come in? How does it apply to my
bond?
Answer: Unless the date a bond or note first increased in value on or after November 1, 1982, happened to
coincide with the beginning of a new maturity period, guaranteed minimum returns for the remainder of
the maturity period the bond or note was in were reflected in published tables of redemption values.
These values were determined with rates announced and published prior to November 1982.
As a bond or note entered an extension, the guaranteed minimum in effect at that time became that
bonds or that notes guaranteed minimum investment yield for that extension. When Treasury first
offered a guaranteed minimum return in November 1982, the rate was set at 7.5% per year,
compounded semiannually, for bonds or notes entering an extension. For bonds or notes entering an
extension on or after November 1986, the rate was reduced to 6% per year, compounded
semiannually. For bonds or notes entering an extension March 1993 or later, the rate was 4% per
year, compounded semiannually.
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*All redemption values calculations are performed on a base denomination of $25. (This is a hypothetical denomination in the case of EE
bonds of this period.) Redemption values for bonds of greater denominations are in direct proportion according to the ratio of denominations;
i.e., a $50 bond is worth twice the value of the base denomination; a $200 bond is worth eight times the value of the base denomination.
2 FS Publication 0035
Question: Can you give me an example?
Answer: Lets use the June 1968 bond again. By December 1987, when it had been held five years under the
market-based rate program, it had entered its second 10-year extension of maturity. That second
extension began on June 1985 when the guaranteed minimum rate in effect for extensions was 7.5%.
The December 1987 guaranteed minimum value of this bond was determined by using the value of the
bond on June 1, 1985, and applying a rate of 7.5% per year, compounded semiannually, to each of the
five semiannual interest earning periods from June 1985 through November 1987.
3 FS Publication 0035
The June 1996 guaranteed minimum value of the bond was calculated by using the June 1995
guaranteed minimum value as a base and applying the rate of 4% per year, compounded
semiannually, to the two semiannual interest earning periods since.
Question: If I go to the bank and cash my bond or note, I will receive a redemption value that is calculated
with either the market-based investment yield or guaranteed minimum investment yield,
whichever makes my bond or note worth more?
Answer: From issue date until the bond or note first increased in value on or after November 1982, increases in
its value were based on the rate of return promised when the bond or note was issued and on
adjustments to that rate made when Treasury announced rate increases. If you held the bond or note
at least five years after the date it first increased in value on or after November 1, 1982, the difference
in the value of your bond or note from the date of that first increase on or after November 1, 1982, and
the redemption value you receive is based on the market-based investment yield or the guaranteed
minimum investment yield, whichever increases the value of your bond or note more overall.
Question: With this method, I cant compare a market-based return with a guaranteed minimum
investment yield for a six-month period?
Answer: Thats correct. The market-based investment yield and guaranteed minimum investment yield are two
separate, alternative, competing streams of calculations. Overall market-based return from the date
an eligible bond or note first increased in value at the start of the market-based investment yield
program is compared with overall guaranteed return from that date. This approach does not involve
comparing a market-based return with a guaranteed minimum investment yield for the current year or
six-month period.
4 FS Publication 0035
ORIGINAL MATURITY TABLES
5 FS Publication 0035