Savings Bonds

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SAVINGS BONDS. During World War I the United States lent money to its allies in Europe to allow them to continue fighting. In order to raise the funds for these loans, the federal government in turn borrowed money from its citizens by issuing U.S. Treasury bonds, also called Liberty Bonds or Liberty Loans. In the end the United States government lost money on Liberty Bonds because, although it paid back citizens at the promised rate of interest, its allies in the war either could not make payments, as was the case with tsarist Russia, or made them at a much lower rate interest than originally

promised, as did the United Kingdom, France, Italy, and Belgium. Nevertheless, the Allies could not have won the war without American money. Indeed, financial support from the United States most likely contributed more to the war effort than did American military victories.

After the discontinuation of liberty loans, the federal government made no similar offering until 1935. Between March 1935 and April 1941, it issued $3.95 billion worth of "baby bonds," as they were called, in denominations ranging from twenty-five dollars to a thousand dollars. On 30 April 1941 the federal government took the baby bonds off the market and the following day issued the first of the defense savings bonds, in the same denominations and bearing the same 2.9 percent interest. Secretary of the Treasury Henry Morgenthau, Jr., sold the first bond to President Franklin D. Roosevelt. In December, when the United States entered World War II, defense savings bonds took on a new name: war savings bonds. After the war they were once again known as defense bonds. After the Korean War the federal government simply termed them savings bonds.

Interest rates on savings bonds rose periodically to reflect rising rates in the general market, but they were always lower than prevailing interest rates. Thus, savings bonds have tended to appeal to cautious investors who value security over high return rates. Between 1952 and 1956 the general public could also buy bonds in denominations as high as ten thousand dollars. Beginning in 1954, trustees of employee savings plans were able to buy hundred-thousand-dollar bonds.

In April 1941 savings stamps, introduced during World War I, reemerged in a different form. They were available in denominations ranging from 10 cents to five dollars. They bore no interest, but purchasers could exchange them for bonds in units of $18.75, the price of a bond redeemable at maturity for $25. The purpose of the stamp program, which ended on 30 June 1970, was to foster patriotism and thrift in schoolchildren.

In December 1941 the federal government established the payroll savings plan, whereby employees voluntarily arrange for regular deductions from their salaries for the purchase of savings bonds. The plan became the major source for sales of bonds in denominations ranging from twenty-five dollars to one thousand dollars both during and after World War II. By the end of 1975, Americans had bought almost $68 billion worth of bonds. Savings bonds lost popularity during the 1990s, when a strong stock market appeared to offer a better return on investors' money, but they began to regain some of their allure in the early twenty-first century once the stock market slowed and the United States entered a military conflict with Afghanistan.


Eichengreen, Barry and Peter H. Lindert, eds. The International Debt Crisis in Historical Perspective. Cambridge, MA: MIT Press, 1989.

Papayoanou, Paul A. Power Ties: Economic Interdependence, Balancing, and War. Ann Arbor: University of Michigan Press, 1999.

Rundell, Walter, Jr. Military Money: A Fiscal History of the U.S. Army Overseas in World War II. College Station: Texas A&M University Press, 1980.

Samuel, Lawrence R. Pledging Allegiance: American Identity and the Bond Drive of World War II. Washington, D.C.: Smithsonian Institution Press, 1997.

Sessions, Gene A. Prophesying upon the Bones: J. Reuben Clark and the Foreign Debt Crisis, 1933–39. Urbana: University of Illinois Press, 1992.

NormaFrankel/a. e.

See alsoBanking: Overview ; Treasury, Department of the ; World War I War Debts .