New Interest Calculations for Savings Bonds
ALEX CHADWICK, host:
This week, the federal government is changing how interest on some US Savings Bonds will be calculated. This change applies to Series EE Savings Bonds. Here to explain the change is Michelle Singletary. She writes the syndicated column The Color of Money for The Washington Post, and she's DAY TO DAY's personal finance contributor. She spoke earlier with DAY TO DAY's Madeleine Brand.
MADELEINE BRAND reporting:
So, Michelle, what's happening with these EE Savings Bonds now?
MICHELLE SINGLETARY (Personal Finance Contributor): Well, starting this week, Series EE bonds will be sold with a fixed interest rate for the life of the bond. So anyone who buys a bond on or after May 1st will earn a fixed rate of interest at the time that they purchase the bond.
BRAND: And that differs from--in the past, it was a variable interest rate?
SINGLETARY: Correct. In the past, when you bought a Series EE bond, your rate could change twice a year, in May and November.
BRAND: So will it affect people who bought these bonds before May 1st?
SINGLETARY: No. If you bought a bond before May 1st, the old rules apply, so your rates on those bonds will be readjusted every six months.
BRAND: So what's the better deal for investors?
SINGLETARY: Well, those who have the bonds before could benefit, because we are right now in a rising interest rate environment, so rate that are on, you know, these kinds or products are going up, not tremendously, but they're going up. But I think overall, lots of experts say this is not a great thing for people who love Series EE bonds, because essentially, under the old program, you could benefit from a rising interest rate environment, where once you buy a Series EE bond under the new change now, you're stuck with that rate for the life of the bond.
BRAND: So traditionally, investors would look to bonds when the stock market was not doing so well.
SINGLETARY: Correct, yes. I mean, you know, the thing is, no matter what rate, these are guaranteed, you're not going to lose money. And there are lots of folks who just can't weather that whole, you know, stock market going up and down, so they turn to bonds for that security. But listen, you still need to pay attention. Under the new rules, because we're in a rising interest rate environment, you may not want to hold on to these Series EE bonds for the life of those bonds, because that's 20 years at a fixed rate.
So I mean, the whole thing about investing and saving is that you want your dollar today to buy the same product or goods or services tomorrow. One of the biggest challenges for savers, as investors, is keeping up with inflation. So people who are not concerned about great return and want a sense of security, but they also want to make sure that their investment dollars keep pace for inflation, do like the I Bond, because it at least guarantees that your investment is going to keep pace with inflation.
BRAND: So if the inflation rate is around 2 percent, usually, your savings interest rate is less than that at a bank--Right?--so you're losing money by doing that?
SINGLETARY: That's why it's so important. You don't want to put it in a savings account that's earning, like, less than 1 percent when inflation is 1 or 2 percent, 'cause you're really losing the value of your money. So that's why it's important to find something where your money, at the very least, is going to keep pace with inflation. You obviously want to put your money in some things that are going to beat inflation, because then you can buy more goods and services with your dollar.
But if safety is your concern, and you want to be sure, then the I Bonds are something to look at. But that doesn't mean that the Series EE Bonds are not a good deal. I mean, again, these are backed by the full faith of the federal government, and so that's very appealing to a lot of people, particularly seniors.
BRAND: Michelle Singletary writes the syndicated column The Color of Money, and she's DAY TO DAY's personal finance contributor.
Thanks for joining us.
SINGLETARY: You're welcome.
CHADWICK: And that interview by DAY TO DAY's Madeleine Brand.
DAY TO DAY is a production of NPR News and slate.com. I'm Alex Chadwick.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.