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.
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.