Financial Terms Glossary

Like the “How Do I…” section, the glossary of the TreasuryDirect.gov website was written by finance wonks, producing a confusing litany of unclear jargon. I was assigned to rewrite the L-S section of the glossary – shown below.

L through S

L

Legal Representative

A person appointed by a court to act on behalf of the estate of another. This is a generic term encompassing all types of representatives, including executors, administrators, personal representatives, and guardians.

Long-term Rate

The long-term rate applies only to interest on Series EE savings bonds with issue dates from May 1, 1995, through April 1997 and then only to interest earnings after the date these bonds are 5 years old. (See “Short-term Rate” concerning interest earned up to the date these bonds are 5 years old.)

Bid yields for the most actively traded Treasury bills, notes, and bonds in the government securities market are used to create a yield curve. This curve relates the yield on a security to its time to maturity. Yields at particular points on the curve are referred to as “constant maturity yields.”

From the yield curve, 5-year Treasury securities yields as of the close of business for each business day of the 6 months prior to May 1 and November 1 are compiled, and the monthly average is calculated for each month (with each monthly average being rounded to the nearest one-hundredth of one percent). The “long-term rate” is 85% of the average of 5-year Treasury securities yields over those 6 months. The May 1 rate reflects market yields during the preceding November through April. The November 1 rate reflects market yields during the preceding May through October.

M

Market-based Interest Rate

Officially known as the “market-based variable investment yield,” it is relevant only to interest earnings for Series E and EE savings bonds and savings notes that are at least 5 years old, earned interest on and after November 1, 1987, and have issue dates prior to May 1, 1995.

Bid yields for the most actively traded Treasury bills, notes, and bonds in the government securities market are used to create a yield curve. This curve relates the yield on a security to its time to maturity. Yields at particular points on the curve are referred to as “constant maturity yields.”

From the yield curve, five-year Treasury securities yields as of the close of business for each business day of each of the six months prior to May 1 and November 1 are compiled, and the monthly average is calculated for each month (with each monthly average being rounded to the nearest one hundredth of one percent). For each 6-month period, starting with the 6-month period that began on May 1, 1982, the average of the monthly averages is determined.

The six-month averages applicable over the entire life of an eligible bond– i.e., the period from the base date (a bond’s issue date or the first date the bond or note increased in value during the period November 1, 1982 through April 1, 1983, whichever date occurred later)–are averaged. That average is discounted by 15% (i.e., 85% of the average is computed) and the result is rounded to the nearest one hundredth of one percent. (If the bond or note is now in an original or extended maturity period that started before May 1989, the rounding is to the nearest one quarter of one percent, rather than the nearest one-hundredth of one percent, until the end of that period.) For each date an eligible bond or note is due to increase in value, the resulting percentage is then used to re-calculate anew starting over from the base date (as defined above) what the eligible bond or note is possibly worth.

Military Safekeeping

See “Safekeeping”

Minor

A person who is under the age of legal competence; a person under the age of majority.

N

Non-administered Estate

An estate of a decedent the settlement of which is not supervised by the court and for which a legal representative has not been appointed by the court.

O

Original Maturity

The original (or initial) term fixed for a bond. During this original term (or period), the bond increases in value and becomes worth at least its face amount.

P

Par Value

See “Denomination”

Payroll Savings Plan

A plan that may be offered by employers to their employees that permits employees to authorize regular deductions from their pay to buy bonds. Each deduction need not equal the purchase or issue price of a savings bond. Deductions may be accumulated by the employer or a third-party service organization on its behalf until sufficient money is on hand to buy a bond of the denomination selected by the participating employee. Participation in a payroll savings plan and offering such a plan are entirely voluntarily.

Note: Treasury is phasing out the issuance of paper savings bonds through traditional employer-sponsored payroll savings plans. As of September 30, 2010, federal employees will no longer be able to purchase paper savings bonds through payroll deduction. The end date for all other (non-federal) employees is January 1, 2011. See our FAQ.

Penalty

A loss consisting of the most recent 3 months’ interest for EE bonds with May 1997 or later issue dates, and I Bonds, if the bonds are redeemed in the first 5 years after issue. In other words, if you redeem a May 1997 or later EE bond, or an I Bond, before it’s 5 years old, you give up the last 3 months’ worth of interest. For example, if you buy an EE bond in May 1997 and redeem it 2 years (24 months) later, you get your original investment back plus 21 months of interest. The value of the bond would be based on the announced rates applied over the 21-month period from May 1997 to February 1999.

Power of Attorney

An instrument whereby the person (grantor) giving the power authorizes another (attorney-in-fact) to act on his or her behalf. The instrument itself is called a power of attorney. The person acting under the power is called an attorney-in-fact.

Principal Co-owner

The principal co-owner is the co-owner whose funds were used to purchase the savings bonds or who received the bonds as a gift, as an inheritance, or through court proceedings and had the bonds reissued to add another person as co-owner without receiving any contribution from that other person.

Purchase Limitation

Series EE bonds are limited to an investment of $5,000 per person, per calendar year. For Series I Bonds, the purchase limit is $5,000 (par value) in the name and taxpayer identifying number (usually, Social Security Account Number) of any one person in an individual capacity.

Bonds the purchaser obtained in earlier years don’t affect the current year’s limitation. Bonds purchased and redeemed in the same calendar year are also excluded from the computation.

For Co-owners – Series EE bonds registered in the names of two persons as co-owners are attributed to the first-named co-owner.

For Beneficiaries – Purchases are attributable to the owner, not the beneficiary.

For Fiduciary Estates – Bonds held by persons serving as guardian or in another fiduciary capacity are computed separately from personal purchases that list them as owner or first-named co-owner.

R

Redemption

“Redemption” and “payment” are used interchangeably and refer to the payment of what a bond or note is worth in cash (currency) or via check or credit to an account as requested by the bond’s owner or co-owner or by a person legally entitled to make such a request according to governing regulations and law.

Registration

The social security number or employer identification number, names, and addresses appearing on the face of a bond. Also referred to as Inscription.

On paper savings bonds issued or replaced on or after August 1, 2006, the first five digits of the Social Security number or Employer Identification number will be masked and replaced with asterisks. This is being done to protect your privacy and to prevent the information from being used for identity theft.

Reinvestment

When proceeds from a Series H bond that has reached final maturity (30 years from date of issue) are used to “buy” a Series HH bond with a current issue date.

Reissue

The cancellation and retirement of a bond and the issuance of a new bond or bonds of the same series, same issue date, and same total face amount. Reissue is a transaction requested in order to change bonds’ registrations, that is, to re-register savings bonds. (Note: Situations for which Series I bonds may be reissued are more limited than for Series EE and other savings bonds.)

Replacement

Issuance of a new bond when a bond is reported lost, stolen, destroyed, mutilated, or not received.

Reportable Event

A transaction, such as a savings bond redemption or reissue (re-registration), that requires Federal income tax reporting of all interest earned from the issue date of a savings bond to the date of the transaction. Savings bond redemptions ordinarily are reportable events or dispositions. A reissue transaction is a reportable event if a living owner, principal co-owner, surviving co-owner, beneficiary, or other person entitled to ownership (for example, an heir upon the death of persons named on the bond) is not named owner or principal co-owner in the new registration on the bond issued in the transaction. (See “IRS Publication 550”, “Investment Income and Expenses”, for more information.)

Retirement Plan Bonds

Nontransferable accrual-type U.S. savings securities issued as an investment option for individuals eligible to make tax-deductible contributions to a “Keogh” (H.R. 10) retirement account. These bonds were first issued in January 1963 after enactment of the Self-Employed Individuals Tax Retirement Act of 1962. The sale of these bonds was terminated April 30, 1982. (Regulations governing these securities are in Title 31 Code of Federal Regulations Part 341, also published as Department of the Treasury Circular, Public Debt Series No. 1-63.)

S

Safekeeping

Safekeeping is a benefit offered to active duty military members who purchase savings bonds through the payroll savings plan. This benefit allows the military members to have their bonds held by their branch of service instead of having the bonds issued and mailed directly to them.

Note: Treasury is phasing out the issuance of paper savings bonds through traditional employer-sponsored payroll savings plans. As of September 30, 2010, federal employees will no longer be able to purchase paper savings bonds through payroll deduction. The end date for all other (non-federal) employees is January 1, 2011. See our FAQ.

Savings Bond

A savings security issued by the U.S. Treasury or an authorized agent showing that money has been loaned to the U.S. Government and is payable to the person to whom it is registered. A “savings bond” is designated as such in the regulations offering the bonds for sale. The bond is a contract between the Government and the bond owner. Each bond is a registered security for which a record is maintained by the Bureau of the Public Debt.

Savings Notes

Savings notes are accrual-type, United States savings securities issued in conjunction with Series E bonds from May 1967 through October 1970. These notes are also called “Freedom Shares.” They had an original maturity period of 4 years and 6 months and have a total interest-earning life span of 30 years. Like savings bonds, they are nontransferable. They were purchased on a discount basis at 81 percent of face value in denominations of $25, $50, $75, and $100. (Regulations governing these securities are in Title 31 Code of Federal Regulations Part 342, also published as Department of the Treasury Circular, Public Debt Series No. 3.67.)

Savings Stamps

From at least the early 1940’s until it was ended on June 30, 1970, the savings stamp program focused first on funding U.S. participation in World War II and later primarily upon encouraging thrift among the nation’s youth by persuading them to save small sums. Stamps were sold in denominations (face values or amounts) of $0.10, $0.25, $0.50, $1.00, and $5.00. Stamps were acquired from post offices and sold in schools to students. Albums and patriotic materials were made available to schools to promote the program. When as little as $18.75 had been saved, a $25 (face amount) Series E savings bond could be purchased. Stamps were non-interest bearing and unregistered.

Series EE U.S. Savings Bond

A Series EE U.S. Savings Bond is an appreciation-type (or accrual-type) savings security issued after 1979 that is a contract between the owner or co-owners and the United States. Under the contract, the owner or co-owners lend money to the United States, and the U.S. must repay that money with interest when the bond is redeemed. (You can cash Series EE bonds anytime after 12 months.) Interest stops accruing 30 years after issue, and the interest rate is subject to change at the beginning of each extended maturity period. (Regulations for these securities are in Title 31 Code of Federal Regulations Parts 351 and 353, also published as Department of the Treasury Circulars, Public Debt Series Nos. 1-80 and 3-80.)

Series HH U.S. Savings Bond

A Series HH U.S. Savings Bond is a current income savings bond issued after 1979 that is a contract between the owner or co-owners and the United States. Under the contract, the owner or co-owners lend money to the United States, and the U.S. must both repay that money when the bond is redeemed at 6 months after issue or later. The U.S. must also pay interest to the owner or co-owners starting at six months after issue and every six months thereafter until the bond stops bearing interest 20 years after issue. The interest rate is subject to change after Series HH bonds are 10 years old. (Regulations for these securities are in Title 31 Code of Federal Regulations Parts 352 and 353, also published as Department of the Treasury Circulars, Public Debt Series Nos. 2-80 and 3-80.)

Series I U.S. Savings Bond

A Series I Bond is an appreciation-type (or accrual-type) savings security issued after August 1998 that is a contract between the owner and co-owners and the United States. ($200 and $10,000 I Bonds are issued no earlier than May 1999.) Under the contract, the owner or co-owners lend money to the United States, and the U.S. must repay that money with interest when the bond is redeemed. (You can cash Series I bonds anytime after 12 months.) Interest stops accruing 30 years after issue. Interest accumulates monthly (with semiannual compounding) and is paid when the bond is redeemed. Interest earnings are inflation-indexed. The I Bond earnings rate is a combination of two separate rates: a fixed rate of return (set by the Treasury Department) and a variable semiannual inflation rate (based on changes in the nonseasonally adjusted Consumer Price Index for all Urban consumers). (Regulations for these securities are in Title 31 Code of Federal Regulations Parts 359 and 360, also published as Department of the Treasury Circulars, Public Debt Series Nos. 1-98 and 2-98.)

Short-term Rate

The short-term rate applies only to interest on Series EE savings bonds with issue dates from May 1, 1995, through April 1997 and only to interest earnings up to the date these bonds are 5 years old. (See “Long-term Rate” concerning interest earned after these bonds are 5 years old.)

Bid yields for the most actively traded Treasury bills, notes, and bonds in the government securities market are used to create a yield curve. This curve relates the yield on a security to its time to maturity. Yields at particular points on the curve are referred to as “constant maturity yields.”

From the yield curve, 6-month Treasury securities yields as of the close of business for each business day of the 3 months prior to May 1 and November 1 are compiled, and the monthly average is calculated for each month (with each monthly average being rounded to the nearest one-hundredth of one percent). The “Short-term rate” is then 85% of the average of 6-month Treasury securities yields during the preceding February, March, and April. The November 1 rate reflects market yields during the preceding August, September, and October.

Single Owner

The person designated on the face of the bond as the only person entitled to redeem the bond during his or her lifetime. Also referred to as “sole owner.”

Sole Owner

See “Single Owner”