All About Savings Bonds

Oct 17, 2011

Written by:
Al Hill


Savings Bond History

United States savings bonds were first issued in 1941, and the first bond sold was to President Franklin D. Roosevelt. The bonds were initiated to fund World War I, and the United States government appealed to the citizens’ patriotism to help sell the bonds. At that time the sale of the bonds was the responsibility of the War Finance Committee, and by the time the initiative was over, 85 million Americans had invested in U.S. savings bonds. These drives continued throughout World War I and World War II, and they became a very important fund source for the government at that time. The sale of war bonds had been tried, with less success, during the Civil War. At that time, it was wealthier investors who bought these certificates, and often they did not earn even what they had put into the bond. Secretary of Treasury, Henry F. Morgenthau, Jr., learned from this example, and he enticed buyers not only with patriotism, but also with a return on their investment. He believed that if a person could purchase a bond for a certain amount of money, and be promised more money if he holds onto the bond for 10 years, then said person would be willing to purchase such a bond. Indeed, this worked, and the very successful War Drives beginning in World War I began. Since then, the United States bond has become an effective way for an individual, or child, or family, to save for the future with minimal risk. With the high-risk, high-yield world of investing, however, savings bonds have been a less common method of saving over the past decade. The savings bond, however, continues to be a positive method for saving, and many parents and grandparents give them as gifts to children and teens to encourage putting money away for college or aother particular reason at a future date.

Types of Bonds

There are several types of bonds that are available for purchase today. The two United States savings bonds that are still available are series EE and series HH.

The EE Bond

The EE bond can be bought for half the face value of the bond, and the bond matures in 12 years to yield the entire value of the bond.

Series HH Bonds

Series HH bonds are referred to as “current income securities.” These bonds are exchanged for series E or series EE bonds, and the amount must total $500 or more. Interest on HH bonds is paid twice yearly through electronics fund transfer from the U.S. Treasury to an individual’s bank.

Muni Bonds and Corporate Bonds

In addition to United States Treasury bonds, there are other bonds available to the consumer. Cities, or municipalities, to raise funds for particular building projects, sell muni bonds. Though these bonds are exempt from state and federal income tax, they do incur a somewhat higher risk due to the fragile financial nature of some municipalities. Companies to raise money for that particular company sell corporate bonds. Interest on corporate bonds is taxable, but sometimes these can yield a higher return, in less amount of time, than a U.S. Treasury bond or muni bond.

Bonds for Kids

Savings bonds can be an excellent resource for college funding. Many grandparents and parents will buy children bonds, expecting that the bond will mature in time for college. There are many programs that encourage kids and young teens to begin saving by using bonds. Because there is a low risk, and because the bonds cannot be cashed in until they mature, it is an excellent savings tool for those who may be apt to withdraw money from savings in a pinch.

Why Buy Bonds?

Low risk is one of the biggest advantages to buying savings bonds rather than investing money in another type of venture. There is little, or no risk of default, as the bond is funded by the federal government.  They are easily cashed in at most banks and at treasury offices. The interest that is made on U.S. savings bonds is non-taxable, and, furthermore, the bonds are free of tax when cashed in if used for college for a child. Another advantage is that they loan the government money; it is an act of patriotism, especially when bonds are bought in a time of need for the government. For many people, U.S. savings bonds are simply the best option all the way around.

Determining Bond Worth

There are a couple of different ways to calculate what a holder’s bond is worth. The easiest tool, however, is a bond calculator, available free, online from the United States Treasury Department. There are charts available, along with values tables and earnings reports to give the holder a general idea of the worth of his bonds as well. The most commonly held bond, the U.S. series EE bond, reaches its maturity in 30 years at the present time. This rate of maturity does change through the years, and the finances of the nation affect it at the given time, and it is affected by when the holder had purchased the bond. When the purchaser goes into the bank to cash in the bond, the teller will generally use the Treasury Department’s web site to determine the value of the bond, and they will give the holder that amount of money in exchange for the bond. The holder signs the bond and accepts responsibility for the taxes on the bond at that time. There are exceptions, however, such as using the bond for college if the holder falls into a particular tax bracket.

Additional Information

  • Buying US Savings Bonds: This site offers information on the purchase of savings bonds. It advises where to buy them, and the advantages of purchasing savings bonds.
  • US Savings Bonds Advisor: This site offers information on everything one may want to know about United States savings bonds. There are updated articles on savings bonds, a bond calculator, and advice on buying bonds.
  • Red, White, and Blue Savings Bonds: Discusses the I bond, another bond offered by the United States government. It discusses taxes, advantages, penalties, and older bonds as well.


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