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FED ERAL RE SE R V E BANK OF NEW YORK Fiscal A g en t o f the U nited States J" Circular No. 4 4 2 7 "I L February 14, 1957 J U N ITED STATES SAVINGS BONDS Treasury Proposes Legislation Authorizing H igher Yields To A ll lianl:ing Institutions, and Others Concerned, in the Second Federal K eserve D istrict: The follow in g statement was made public tod a y: The Treasury announced today that it has requested the Congress to enact legislation which will permit an increase in the interest rate on new sales o f United States Savings Bonds. The Treasury’s request to the Congress called attention to the im portant role that the Savings bonds program has played in our national life over the last 22 years, serving to encourage th rift and to place the G overnm ent’s finances on a sound basis. Today about 40 m illion persons own more than $41 billion of Series E and H Savings bonds. Identical proposed bills were transmitted to the Senate and the House o f Representatives today which would give the Treasury the same flexibility with regard to interest rates on Savings bonds that it lias on other types o f Treasury bonds. Passage o f the legislation will permit the Treasury to go forw ard with plans to offer im proved interest rate terms on all Series E and II bonds sold on or after February 1, 1957. I f the proposed legislation is passed, the Treasury plans to increase to 3*4 percent the interest rate on new E bonds held to maturity, in place of the present 3 percent. The issue price and face value of the new' E bond will be unchanged but the present 9 years and 8 months maturity will be shortened to 8 years and 11 months. Terms o f any extension privilege fo r the new bonds will be determined later. A lso, redemption values o f the new bond fo r the early years will be increased to provide a substan tially higher yield to owners who find it necessary to redeem their bonds before maturity. The return on the new bond, if held 3 years, would be 3 percent, compared with 2*4 percent at present. However, present owners o f bonds will generally find it advantageous to continue holding them. F or example, a $100 E bond has a redemption value o f $79.20 when held two and a half years. That bond will earn $20.80 more to reach its fu ll $100 value at first maturity, and this $20.80 is slightly more than 3*4 p er cent on $79.20 fo r the remaining period of 7 years 2 months, compounded semi-annually. People holding bonds which have reached maturity and are being retained under the ten-year extension privilege will also find it to their advantage to continue holding them. Such bonds reaching the extension period since May 1952 are already paying a fu ll 3 percent interest compounded semi-annually and are redeemable on demand, and bonds o f an earlier period show a still greater return. The Treasury also plans to offer, effective F ebruary 1, 1957, a revised 10-year Series II bond with yields generally comparable to the new E bond and returning S1 percent if held to maturity. The new /^ H bond, like the present bond, would pay interest by check each six months in contrast to the appreciationtype E bond. On passage o f the legislation, all bonds dated February, 1957, or thereafter would bear the new terms automatically. Existing stocks o f bonds in the hands o f the Treasury’s more than 20,000 E bond issuing agents w^ould be used until supplies o f the new bonds are available. Since the issue date on the bond would determine its terms, no purchaser who received an old form o f bond dated February, 1957, or thereafter need feel that he should exchange it fo r a new bond w’lien it is available— although he may if he wishes. The E and H Savings bonds rank among the best investments in the w orld fo r the average saver. The man who buys a Savings bond has something that other bonds do not offer— complete freedom from market fluctuations. He also has something many other form s o f saving do not have— a guaranteed interest rate over a period o f years. lie has the unusual protection o f safety against the physical loss or destruction o f his securities; a million separate bonds have been replaced by the Treasury over the years. Series E bonds have acquired greater attractiveness in recent years because of the cou n try’s substantial success in curbing inflation. Government fiscal and monetary policies will continue to be directed toward the twin goals o f economic growth and stability in the value o f the dollar. Because o f the more attractive features o f the new Series E and H bonds, the limit on bonds which may be purchased by one individual in any one year is being reduced from $20,000 to $10,000 face amount for each series. The Treasury is withdrawing the present investment-type Series J and K bonds from sale, effec tive A p ril 30, 1957. Both o f these decisions underline the Treasury’s desire to emphasize the Savings bond as a security designed for millions o f average individual American savers. A d d it io n a l c o p ie s o f th is c ir c u la r w ill b e fu r n is h e d u p o n re q u e s t. A lfred H ayes, President. UNDER SE C R E T A R Y O F TH E TR E A SU R Y W A SH IN G T O N F ebruary 14, 1957 To P a yin g and Issuing A g en ts fo r United States Savings B on ds: The attached press statement contains the T rea su ry ’s announcement o f its request to the Congress to enact legislation which will perm it an increase in the interest rate on all Series E and H bonds sold on or a fter F ebruary 1, 1957. The im provem ent in the rate to 3*4 percent fo r bonds o f both series held to maturity, and the substantially higher yield on bonds redeem ed dur ing the earlier years, are basic im provem ents over the present bonds. Y ou r continued support o f the Savings bond program and you r assist ance in acquainting present owners and prospective purchasers w ith the new terms and conditions, and the general advantages to most owners to continue holding bonds they already own, w ill be very much appreciated. I f the legislation is enacted, the T reasury w ill prom ptly proceed with the preparation and prom ulgation o f new issue circulars, tables o f redem p tion values, and other pertinent inform ation, which w ill be prom ptly forw arded to you. V ery truly yours, W . R andolph B u rgess, Under Secretary.