Treasury Secretary Robert E. Rubin Makes U.S. Savings Bonds Announcement

FOR IMMEDIATE RELEASE

April 30, 1997

I am pleased to announce a number of steps we are taking to make savings bonds more attractive investments for American savers.

As you know, the rates on savings bonds are calculated every six months based on market rates on outstanding Treasury securities. Starting tomorrow, those calculations will be done differently in three important ways.

First, the market rates on which the savings bond rates are calculated will be long-term rates, rather than the current combination of a short-term and a long-term rate.

Second, the percentage of market rates that will be paid on savings bonds will increase from 85 percent to 90 percent.

Third, interest on savings bonds will accrue monthly, instead of every six months. This will eliminate the problem of an investor losing up to five months interest by redeeming a savings bond at the wrong time. To encourage longer term holdings of savings bonds, however, there will be a three-month interest penalty if a savings bond is redeemed within the first five years of its issuance.

These changes will make savings bonds more attractive and competitive. For decades, savings bonds have helped make the American dream a reality for millions of families -- helping to pay for everything from housing to education to retirement. About one in four Americans now owns a savings bond. That's good but we can -- and should -- do better.

Improving the savings bonds program is part of a much broader effort by the Clinton Administration to encourage greater savings. For the nation, more savings means more investment and greater productivity. For families, that translates into higher wages and greater opportunity.

Our savings rate is far too low in this country. The rate is equivalent to 4.2 percent of GDP, the lowest by far of the G-7 countries, and lower than many developing countries. Increasing that rate has been a high priority for President Clinton. We have taken four steps to turn that priority into reality.

First, we have instituted pension reforms to make pensions portable for workers and simplify the pension laws for businesses. Knowing that you can take your retirement benefits with you if you change jobs helps workers go where their skills and talent dictate.

Second, we have proposed a number of measures to expand access to Individual Retirement Accounts. The Administration's proposals are designed to improve current incentives for saving in general, and retirement saving in particular, and to improve the effectiveness of IRAs, while significantly expanding IRA eligibility.

Third, we introduced new inflation-indexed notes earlier this year. Our first two sales of this landmark security have been great successes. Next year, we will expand this effort by introducing the first inflation-indexed savings bond.

Fourth, we are using technology in an effort to make information about the savings bond program more available to all Americans. We established a home page on the World Wide Web last spring where would-be investors are able to download the Savings Bond Wizard, a simple program that lets investors keep track of their bond holdings. Later this year, we will take another step to make savings bonds more available by introducing credit card purchasing on-line.

The Treasury Department is committed to continuing to build on these measures. As we do so, we will raise the savings rate, which will, in turn, promote a stronger national economy and improve the economic prospects of middle-class families around the country. On Monday, we announced that we expect to issue $65 billion less in debt during this April-June quarter than will mature. This will be a record paydown and is largely the result of higher-than-expected tax receipts this month. It demonstrates the health of the economy and the continuing benefits of the President's deficit reduction program of 1993. I think this announcement demonstrates that we have been responsible and conservative in our budget forecasting and suggests that the deficit could be down for the fifth year in a row.