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Treasury Considers Interest Rate Cut on Savings Bonds; Sales Up Sharply

October 30, 1986|From a Times Staff Writer

WASHINGTON — The Treasury Department is considering a reduction in the 7.5% guaranteed interest rate for U.S. savings bonds but no final decision has been made, officials said Wednesday.

"This is a complicated question, trying to balance an attractive vehicle for investors, cost-effectiveness for the Treasury and not having excessive competition for savers' funds," Charles O. Sethness, assistant Treasury secretary, said at a news conference.

The Treasury had indicated earlier this year that the rate might be cut but officials refused Wednesday to say when the reduction is likely to take place.

At a time of falling interest rates, bonds with an assured rate of 7.5% are an attractive investment, and sales have been brisk. The rate is guaranteed for bonds that are held for five years.

More than $1 billion in bonds were sold in August and in September, the highest figures since the end of World War II.

Bonds can be purchased at banks in denominations as low as $25 and are free of state and local income taxes. The federal income tax on the interest is not due until the bonds are cashed.

The savings bonds are competing with bank certificates of deposit and money-market funds. Most funds and certificates are offering rates below the 7.5% on the savings bonds.

There is some speculation that the Reagan Administration does not want to cut the guaranteed rate before next Tuesday's congressional election and risk criticism for wiping out a good financial opportunity for small investors.

Financial experts expect that the rate might be cut to as low as 5.5%, but Treasury officials refused to speculate on specific figures.

In Los Angeles, Security Pacific National Bank said Wednesday that a survey of 26 of its branches in Southern California showed that savings bond sales during the first three days of this week were up 45% from last week. A spokeswoman said: "It's one of the best deals in town at 7.5%."

Sales at Crocker Bank's branch at 333 S. Grand Ave. have been brisk during the past month, a bank spokesman said. On Wednesday, he added, a number of customers inquired about the possible change in the savings bond rate.

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