Current formula
Special-issue securities bear a nominal rate of interest determined by a formula specified
by law in section 201(d)
of the Social Security Act.
The current formula was established by the 1960 amendments to the
Social Security Act. The formula sets the rate applicable in a given month
to the average market yield on marketable interest-bearing securities of
the Federal government which are not due or callable until after 4 years
from the last business day of the prior month (the day when the rate is determined).
The average yield must then be rounded to the nearest eighth of 1 percent.
This formula became effective with the October 1960 rate.
Prior formulas
Under the Social Security Act as amended in 1956, an interest rate was
related to the average coupon rate on all outstanding marketable obligations
of the United States, at the time the rate was determined, that were not due
or callable until after 5 years from the date of original issue. As under
current law, the average was rounded to the nearest multiple of one-eighth
of 1 percent.
Prior to the 1956 amendments, the average coupon rate was computed for all outstanding marketable obligations, with no limitation on the maturities. In addition, the rounding formula called for rounding to the next lower multiple of one-eighth of 1 percent.