[Code of Federal Regulations]
[Title 31, Volume 2]
[Revised as of July 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 31CFR344.7]

[Page 265-266]
 
                  TITLE 31--MONEY AND FINANCE: TREASURY
 
         CHAPTER II--FISCAL SERVICE, DEPARTMENT OF THE TREASURY
 
PART 344--U.S. TREASURY SECURITIES--STATE AND LOCAL GOVERNMENT SERIES--Table of Contents
 
                  Subpart C--Demand Deposit Securities
 
Sec. 344.7  What are Demand Deposit securities?


    Demand deposit securities are one-day certificates of indebtedness 
that are automatically rolled over each day until you request 
redemption.
    (a) How is a Demand Deposit account established? Each demand deposit 
subscription will establish a unique account.
    (b) How are interest rates determined? Each security shall bear a 
variable rate of interest based on an adjustment of the average yield 
for three-month Treasury bills at the most recent auction. A new rate is 
effective on the first business day following the regular auction of 
three-month Treasury bills and

[[Page 266]]

is shown in the SLGS rate table. Interest is accrued and added to the 
principal daily. Interest is computed on the balance of the principal, 
plus interest accrued through the preceding day.
    (1) How is the interest rate calculated?
    (i) First, you calculate the annualized effective demand deposit 
rate in decimals, designated ``I'' in Equation 1, as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE00.000

    (ii) Then, you calculate the daily factor for the demand deposit 
rate as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE00.001

    (2) Where can I find additional information? Information on the 
estimated average marginal tax rate and costs for administering demand 
deposit SLGS securities, both to be determined by Treasury from time to 
time, will be published in the Federal Register.
    (c) What happens to demand deposit securities during a Debt Limit 
Contingency? At any time the Secretary determines that issuance of 
obligations sufficient to conduct the orderly financing operations of 
the United States cannot be made without exceeding the statutory debt 
limit, we will invest any unredeemed demand deposit securities in 
special ninety-day certificates of indebtedness. Funds invested in the 
ninety-day certificates of indebtedness earn simple interest equal to 
the daily factor in effect at the time demand deposit security issuance 
is suspended, multiplied by the number of days outstanding. When regular 
Treasury borrowing operations resume, the ninety-day certificates of 
indebtedness, at the owner's option, are:
    (1) Payable at maturity;
    (2) Redeemable before maturity, provided funds are available for 
redemption; or
    (3) Reinvested in demand deposit securities.

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