updated 4/4/2005 4:53:55 PM ET 2005-04-04T20:53:55

U.S. savings bonds will undergo a major change next month when interest rates will be fixed for the life of new Series EE bonds, the government announced Monday.

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Starting on May 1, people who buy a new bond will receive for the life of the bond whatever interest rate is in effect at the time of purchase. Currently, interest rates on series EE bonds are adjusted every six months.

The change will not affect holders of existing Series EE bonds and any bonds purchased before the May 1 switch-over to the new system.

While the variable-rate bonds cost savers from 2001 to 2004 as interest rates were falling, rates have now been rising as the Federal Reserve is tightening credit conditions to keep inflation under control.

The move will save the government money in a rising interest rate environment because it will mean lower payments on this portion of the national debt.

“This is a huge change,” said savings bond expert Daniel J. Pederson. “A return to fixed rates would appear to be ... a way for the government to save money, and as an investor, if the government saves, that means you are getting less.”

Pederson, the author of “Savings Bonds: When to Hold, When to Fold and Everything In-Between,” said the change underscores the need for investors to keep track of each individual bond they own so that they can make sure that they sell their worst-performing bonds first.

For the 12 months that ended last Sept. 30, $8 billion in savings bonds were sold, with $3.1 billion of that in Series EE bonds.

The most popular savings bond, with $4.9 billion in sales last year, was the Series I bond, which has a fixed-base interest rate but is adjusted every six months to reflect inflation. The inflation part of the bond is tied to changes in the Consumer Price Index. These bonds will not be affected by the changes to the Series EE bonds.

The Series EE bonds have had a variable rate since 1982. All of those bonds still outstanding will continue to see changes in the interest rate they pay every six months, on May 1 and Nov. 1.

The new version of Series EE bonds will also see interest rates changed on May 1 and Nov. 1 but those changes will only affect new bonds sold after those dates.

Savings bonds can continue to accrue interest for up to 30 years and can be purchased directly from the Treasury.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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