War Bond

A war bond is a debt security issued by a government to finance military operations during times of war or conflict. Because war bonds offered a rate of return below the market rate, investment was achieved by making emotional appeals to patriotic citizens to lend the government money.

A war bond is an initiative by a government to fund military operations and spending by issuing debt for the public to purchase.

The public may buy these bonds out of a feeling of patriotic duty, or other emotional appeals.

Although war bonds do not typically pay interest, they are sold at a discount and mature to face value, typically after a period of 10 to 30 years.

A war bond is a debt instrument issued by a government as a means of borrowing money to finance its defense initiatives and military efforts during times of war. A war bond is essentially a loan to a government.

The bonds were sold below their face value—investors paid less than the face value initially and were paid the face value amount at maturity. In other words, war bonds were considered zero-coupon bonds because they didn’t pay interest payments throughout the year or coupon payments. Instead, investors earned the difference between the purchase price and the face value of the bond at maturity.

War bonds were baby bonds, which meant they had a smaller par value, or face value, than standard bonds. This made them more affordable for retail investors. Another feature of the bonds was that they were nontransferable—only the bond purchaser could redeem the bonds in the future. War bonds originally had a 10-year maturity, which resulted in a 2.9% return.

Congress extended the interest that could be earned so that bonds sold from 1941 to 1965 accrued interest for 40 years. Bonds issued after 1965 accrued interest for 20 years. After the end of World War II, War Bonds became known as Series E bonds. The U.S. government continued issuing Series E bonds until 1980 when Series EE bonds replaced them.

War bonds issued by the United States were a little different from other Treasury securities.

War bonds (or Liberty bonds, depending on the year) were zero-coupon securities, meaning that they did not pay any interest over the lifetime of the bond. Moreover, the face value was different from the actual price of the bond: You would buy the bond at a discount (typically between 50%-75% of the bond’s face value) and receive the full face value when the bond matured. The exact maturity date would depend on the year a war bond was issued. A bond issued at the beginning of World War II could only be cashed out ten years later. Congress later amended the law so that war bonds could continue to accumulate interest over 40 years.

Besides the United States government, other countries also issued war bonds, including Canada, Germany, the United Kingdom, and Austria-Hungary.

In the U.S., the War Advertising Council promoted voluntary compliance with bond buying. Motives to purchase war bonds were embedded in patriotism and conscience, given that these bonds offered a rate of return that was below the prevailing interest rates in the market.

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