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Losing Interest In EE Savings Bonds

The bonds will have a 30-year life, consisting of a 20-year "original maturity" and a 10-year "extended maturity." The interest rate set at the bond's issue may apply for that entire period, but the Treasury reserves the right to change it for the final 10.

In addition, there will be a floor of sorts: New bonds will be guaranteed to double in value over the first 20 years, the equivalent of an annual interest rate of about 3.5 percent. If the original interest rate won't produce that doubling, the Treasury will make a one-time adjustment at the original maturity to make up the difference.

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In the current market, this change means that buyers of EE bonds will be locking in a relatively low rate for at least 20 years. If rates soar, the new structure may allow savers to lock in a high rate, but if the Treasury found that happening it might well switch back to variable rates.

Savers will now have to consider whether the federal tax deferral is attractive enough to offset the risk of locking in a low rate. Also, many experts expect taxes to rise, given the federal deficit, so deferring taxes may actually be counterproductive.

Savings bonds, like other Treasury securities, are exempt from state and local taxes, which makes them attractive to residents of high-tax jurisdictions such as the District, and unlike other Treasurys are available in small denominations.

But just as in mortgage finance, fixed rates look better to borrowers than lenders when interest rates are low, and in the savings bond market it is the Treasury that is the borrower. You are the lender.

A spouse not covered by an employer-sponsored health insurance plan can set up a health savings account, even if the other spouse and their children are covered by the other spouse's employer with insurance that doesn't meet the HSA requirements, the Treasury Department ruled last week.

HSAs are tax-free savings/investment accounts meant to accompany a high-deductible health insurance plan. The account can be used to pay costs not covered by insurance, but account holders can keep money they don't spend.

The idea in this "consumer-driven" approach is that individuals will curb their health care spending if they get to benefit from the savings, and that in turn will put downward pressure on medical costs.

Individuals cannot contribute to an HSA if they are covered by a plan with a deductible that is below certain limits.

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