Comments on: GSE bailout could lower U.S. credit rating http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/ Thu, 04 Dec 2008 00:11:10 +0000 http://wordpress.org/?v=2.0.4 by: Tom Adams http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24733 Thu, 31 Jul 2008 14:22:59 +0000 http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24733 Mike - I think it's amazing that they've left the guaranteed minimum for these older bonds at 4% until now. Right now the Treasury can get away with 1.4% on new EE bonds but is still paying 4% on the older ones? My guess is that you're right. We'll get a new administration next year that is a lot more competent than the current bunch - who sort of stumble from natural disaster to disasters of their own making then do exactly the wrong thing. Tom Adams Mike - I think it's amazing that they've left the guaranteed minimum for these older bonds at 4% until now.

Right now the Treasury can get away with 1.4% on new EE bonds but is still paying 4% on the older ones?

My guess is that you're right. We'll get a new administration next year that is a lot more competent than the current bunch - who sort of stumble from natural disaster to disasters of their own making then do exactly the wrong thing.

Tom Adams

]]> by: Mike McCune http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24706 Thu, 31 Jul 2008 03:31:57 +0000 http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24706 Tom, Yes, I have realized that I must have misunderstood the terms of EE bonds when I bought them in the late 80's. I was quoted rates over the 1.800.4USBONDS phone line of over 7% with a 6% guaranteed rate floor only to find (thanks later to the savings bond wizard)they never paid over 6%, and then after 12 years and reaching face value, dropped to 4%. Ok, I live and learn. I am confident that savings bonds are risk-free in the sense I will be able to liquidate them when I need to, but who's to say a new regime this Fall won't drop the "guaranteed" rate floor again - perhaps to 2%? Thanks. -Mike. Tom, Yes, I have realized that I must have misunderstood the terms of EE bonds when I bought them in the late 80's. I was quoted rates over the 1.800.4USBONDS phone line of over 7% with a 6% guaranteed rate floor only to find (thanks later to the savings bond wizard)they never paid over 6%, and then after 12 years and reaching face value, dropped to 4%. Ok, I live and learn.

I am confident that savings bonds are risk-free in the sense I will be able to liquidate them when I need to, but who's to say a new regime this Fall won't drop the "guaranteed" rate floor again - perhaps to 2%? Thanks.

-Mike.

]]> by: Tom Adams http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24683 Wed, 30 Jul 2008 13:56:40 +0000 http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24683 Rick - Savings Bonds of that vintage have a series of "maturity periods". The first period starts when you buy the bond and ends when the amount you invested has doubled (when the bond reaches face value). For bonds purchased from Nov 82 to Oct 86, this was 10 years (an effective rate of 7.05%). For bonds purchased from Nov 86 to Feb 93, this was 12 years (an effective rate of 5.86%). At the end of the first maturity period, a second 10 year period begins. At the end of that one a third one begins and lasts another 10 or 8 years - until the bond stops earning interest. The rules for these bonds have always said that at the beginning of the second and third maturity periods, the Treasury has the right to change the "guaranteed minimum rate" for that maturity period. For maturity periods beginning Feb 1993 and before, this rate was 6%. Since then it's been 4%. So, if you have any bonds from Jan or Feb 83, they would have doubled in Jan or Feb 93 and been reset to 6% until Jan or Feb 2003, when they would been reset to 4%. Other bonds of your vintage would have entered new maturity periods after the rate had been lowered to 4%. So that's the minimum rate they've earned since then. The rules on these bonds allowed higher rates if interest rates went up, but that didn't happen. Tom Adams Rick - Savings Bonds of that vintage have a series of "maturity periods". The first period starts when you buy the bond and ends when the amount you invested has doubled (when the bond reaches face value).

For bonds purchased from Nov 82 to Oct 86, this was 10 years (an effective rate of 7.05%). For bonds purchased from Nov 86 to Feb 93, this was 12 years (an effective rate of 5.86%).

At the end of the first maturity period, a second 10 year period begins. At the end of that one a third one begins and lasts another 10 or 8 years - until the bond stops earning interest.

The rules for these bonds have always said that at the beginning of the second and third maturity periods, the Treasury has the right to change the "guaranteed minimum rate" for that maturity period.

For maturity periods beginning Feb 1993 and before, this rate was 6%. Since then it's been 4%.

So, if you have any bonds from Jan or Feb 83, they would have doubled in Jan or Feb 93 and been reset to 6% until Jan or Feb 2003, when they would been reset to 4%.

Other bonds of your vintage would have entered new maturity periods after the rate had been lowered to 4%. So that's the minimum rate they've earned since then. The rules on these bonds allowed higher rates if interest rates went up, but that didn't happen.

Tom Adams

]]> by: Rick http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24622 Tue, 29 Jul 2008 16:30:51 +0000 http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24622 I have several Series EE bonds which I purchased during the period 1983-1991 and according to my records, it appears that these particular bonds have never commanded an interest rate much higher than 4% (4.18% Max.) for years. Does this mean that these bonds will eventually pay out at a guaranteed minimum interest rate of 6% if held to maturity or some point in time? I have several Series EE bonds which I purchased during the period 1983-1991 and according to my records, it appears that these particular bonds have never commanded an interest rate much higher than 4% (4.18% Max.) for years. Does this mean that these bonds will eventually pay out at a guaranteed minimum interest rate of 6% if held to maturity or some point in time?

]]> by: Tom Adams http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24613 Tue, 29 Jul 2008 15:00:59 +0000 http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24613 Bill - thanks for your help. Mike - I think you've misunderstood what the Treasury did. The change in the "guaranteed minimum rate" from 6% to 4% applied to new bonds and older bonds entering new "maturity periods". This was always part of the deal with these bonds. <a href="http://www.savings-bond-advisor.com/how-to-cash-in-a-savings-bond/" rel="nofollow" rel="nofollow">Here's more information</a>. It doesn't mean the Treasury can do whatever it wants. Once a bond is issued, the Treasury has to - and does - follow the rules in effect at the time the bond was issued. Tom Adams Bill - thanks for your help.

Mike - I think you've misunderstood what the Treasury did.

The change in the "guaranteed minimum rate" from 6% to 4% applied to new bonds and older bonds entering new "maturity periods". This was always part of the deal with these bonds. Here's more information.

It doesn't mean the Treasury can do whatever it wants. Once a bond is issued, the Treasury has to - and does - follow the rules in effect at the time the bond was issued.

Tom Adams

]]> by: Bill Harrell http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24541 Mon, 28 Jul 2008 18:56:41 +0000 http://www.savings-bond-advisor.com/gse-bailout-could-lower-us-credit-rating/#comment-24541 Wall Street Journal - 01 March 1993 In a move considered long overdue by some experts, the Treasury Department is cutting the guaranteed minimum rate on US Savings Bonds to 4% from 6%, effective on bonds sold from Mar 1, 1993 on. Bill Wall Street Journal - 01 March 1993

In a move considered long overdue by some experts, the Treasury Department is cutting the guaranteed minimum rate on US Savings Bonds to 4% from 6%, effective on bonds sold from Mar 1, 1993 on.

Bill

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