What are war bonds?

War bonds are debts sold by the government to finance military operations. Countries often market these bonds not only as investment opportunities but also as a chance to express patriotism.

Definition and Example of War Bonds

War bonds are essentially a loan to the government to help fund the war. They are marketed directly to citizens as an opportunity to support the war effort and earn a financial return in the process.

Alternative name: Liberty Bonds

In the United States, war bonds became popular during World War I, when the country began selling Liberty Bonds. The bonds were marketed to tap into the patriotic sentiment of Americans, with slogans like “If you can’t enlist, buy a Liberty Bond” and “Defend your country with your dollars.” Even Charlie Chaplin and other famous actors appeared in short films encouraging the purchase of war bonds.

How War Bonds Work

War bonds are sold for less than their face value, and the buyer receives the full face value plus interest at maturity. Historically, the yield on war bonds was not lower than that of traditional bonds. The World War II war bonds, or Series E, were initially supposed to mature in 10 years but were granted an interest extension lasting 30 or 40 years, depending on the denomination.

Series E bonds were sold at 75% of their face value and had an interest rate of 2.9%, compounded semiannually. There were five denominations available to start: $25, $50, $100, $500, and $1,000. Later, the government would add $5,000 and $10,000 options for wealthy investors. For instance, if you wanted to buy a $1,000 war bond, you could purchase it for $750; $500 for $375; or $100 for $75.

Note: Two commemorative amounts were added: $200 for President Roosevelt and $75 for President Kennedy.

The final round of Series E stopped earning interest in 2010. Those who still held Series E war bonds in 1960 were able to exchange their original bonds for Series H bonds, deferring any tax obligation until the new bonds matured. Series H bonds stopped paying interest in 2009.

If you have Series E war bonds, you can go to your bank and exchange them for cash. The U.S. Department of the Treasury has a useful calculator to determine the value of your Series E bonds today. According to the calculator, a Series E war bond valued at $1,000 purchased for $750 was worth $9,304.40 in September 2020. The war bond valued at $10,000 purchased for $7,500 was worth $93,044.

Note: In relative comparison, war bonds have not been particularly profitable investments. For example, an investment of $1,000 in the S&P 500 in August 1941 was worth $1.98 million by the end of August 2020.

If you have old paper bonds, you may want to find out what you can earn by selling them to a collector. Although the collector will not be able to redeem them, they may see value in keeping them as a piece of history and offer you more than you would receive by converting them to cash at the bank.

Notable Events

During World War II, the United States spent nearly four years at war, calling up millions of soldiers and manufacturing countless ships, aircraft carriers, tanks, weapons, and other equipment and supplies – a cost estimated at around $4.1 trillion when adjusted for today’s dollar value.

It was

The United States needed to raise funds quickly and did so significantly through the sale of war bonds. The government urged citizens to purchase these war bonds as a national duty, and over 85 million Americans heeded the call. During World War II, Americans bought $185.7 billion worth of war bonds.

In comparison, recent wars, including the conflicts in Iraq and Afghanistan, have primarily been financed by increasing the country’s external debt.

Source: https://www.thebalancemoney.com/what-are-war-bonds-how-much-are-they-worth-today-4776235