As in prior periods of war, between 1941 and 1945, American citizens purchased bonds to the tune of more than $185 billion. By buying the bonds, citizens not on active duty demonstrated their patriotism and contributed to the Allies' efforts to defeat the Axis nations. During that period, it's likely that some American citizens deferred the purchase of a $25 bike and bought a bond instead.
The question is "What would a $25 war bond purchased during the second world war be worth today?" And are old bonds worth anything?
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Purpose of War Bonds
During and before World War I, it had been the custom of the United States to pay war bills using bond issues. In fact, when the United States declared war on Germany on April 6, 1917, President Woodrow Wilson immediately turned to Congress to raise the needed war funds.
Rather than fight the war "on a credit" as President George W. Bush and 110th Congress did when conducting the $6.4 trillion "War on Terror," the 1917 Congress chose a different route. Senators and Representatives supported an increase in taxes and sold Liberty Bonds to cover the costs of World War I. In fact, 18 days after Wilson declared war, Congress authorized the sale of $5.5 billion in Liberty Bonds, the debt security the U.S. government had historically issued to finance the military in times of war.
Sale of War Bonds
During World War I, the rate of return a buyer received through the purchase of the Liberty Bonds was typically below the market rate. Consequently, the government relied on an emotional appeal to patriots to achieve the sale of the bonds, which effectively meant citizens lent the government money.
The government's reliance on marketing and branding to sell the bonds is evidenced by the drafting of Charlie Chaplin during World War I in the campaign to market the Liberty Bonds to the public. In turn, during World War II, Norman Rockwell's Four Freedoms paintings became posters to promote the sale of the War Bonds – rebranded Liberty Bonds – and, through the posters' sale, to fund the war.
Following World War II, U.S. War Bonds were once again rebranded as Series E bonds. Then, in 1980, the U.S. Treasury announced the Series EE Bonds.
War Bonds Value
As stated above, the return on war bonds has been less than that which an investor can achieve by investing in other securities. Regardless, to gauge war bonds value, you must consider the bond's rate and terms, its manner of redemption and the related tax law.
The Treasury provides the following information regarding the Series EE Bond rates and the rules related to their redemption and the tax consequences thereof:
Series EE Bond Rates & Terms
- Each Series EE bond that was issued in May 2005 or after earns a fixed rate of interest.
- A Series EE bond that was purchased between May 1997 and April 30, 2005, earns a variable interest rate.
- The bond's interest is added to it on a monthly basis and is paid to the investor when she cashes the bond.
- The paper versions of EE bonds were sold at 50 percent of the face value, so, for example, the buyer paid $25 for a $50 bond.
- The electronic version of the bond, which you purchase using the website TreasuryDirect.gov, is sold at face value, meaning you pay $25 for a $25 bond.
- After 20 years, the value of the electronic version of the EE bond will be twice the face value.
Series EE Bond Redemption
- You must purchase then hold the bond for one year or more.
- The maximum interest-earning period is 30 years, but you can cash them after one year.
- You will incur an early redemption penalty if you cash the bond in less than 5 years after its purchase. That penalty is 3 months interest.
- If you hold the bond for 5 years prior to redeeming it, there is no penalty.
EE Bond Tax Considerations
- Savings bonds are exempt from state and local taxes except for estate or inheritance taxes.
- Your bond's interest earnings are subject to federal income tax.
- Your bond's interest earnings might be excluded from federal income tax if the bond is used to finance education.
An enduring image from World War II is the Norman Rockwell prints, which supported the government's war bond effort. Then and now, people buy war bonds because the government desperately needs the money. War bonds values depend on three factors: the bond's rate and terms, and the rules and regulations that govern its redemption.
- Federation for American Scientists: War Bonds in the Second World War: A Model for a New War Bond
- Brown: The cost of the global war on terror: $6.4 trillion and 801,000 lives
- Federal Reserve History: Liberty Bonds
- Treasury Direct: A History of the United States Savings Bond Program
- Baylor: World War II Propaganda
- Corporate Finance Institute: War Bonds
- Smithsonian Magazine: Norman Rockwell’s Four Freedoms Brought the Ideals of America to Life
- Treasury Direct: Series EE Savings Bonds