United States Savings Bonds are debt securities issued by the United States Department of the Treasury to help pay for the U.S. government's borrowing needs. They are considered one of the safest investments because they are backed by the full faith and credit of the United States government. The savings bonds are nonmarketable treasury securities issued to the public, which means they cannot be traded on secondary markets or otherwise transferred. They are redeemable only by the original purchaser, a recipient (for bonds purchased as gifts) or a beneficiary in case of the original holder's death. As of 2023, redeeming savings bonds is very difficult, as most banks decline to do so.
History
On February 1, 1935, President Franklin D. Roosevelt signed legislation that allowed the U.S. Department of the Treasury to sell a new type of security, called the savings bond, to encourage saving during the Great Depression. The first Series A savings bond was issued a month later, with a face value of $25. They were marketed as a safe investment that was accessible to everyone. Series B, C, and D bonds followed over the next few years.
Series E bonds, referred to as Defense Bonds, were a major source of financing in the period just before U.S. entry into World War II. On April 30, 1941, Roosevelt purchased the first Series E bond from Treasury Secretary Henry Morgenthau Jr.; the next day, they were made available to the public. After the attack on Pearl Harbor, Defense Bonds became known as War Bonds. Stamps featuring a Minuteman statue design in denominations of 10¢, 25¢, 50¢, $1, and $5 were also sold to be collected in booklets which, when filled, could be exchanged to purchase interest-bearing Series E bonds. All the revenue received from the bonds went directly to support the war effort.
After the war ended, savings bonds became popular with families, with purchasers waiting to redeem them so the bonds would grow in value. To help sustain post-war sales, they were advertised on television, films, and commercials. When John F. Kennedy was president, he encouraged Americans to purchase them, which stimulated a large enrollment in savings bonds. By 1976, President Ford helped celebrate the 35th anniversary of the U.S. savings bond program.
In 1990, Congress created the Education Savings Bond program which helped Americans finance a college education. A bond purchased on or after January 1, 1990, is tax-free (subject to income limitations) if used to pay tuition and fees at an eligible institution.
In 2002, the Treasury Department started changing the savings bond program by lowering interest rates and closing its marketing offices. As of January 1, 2012, financial institutions no longer sell paper savings bonds. That year, the Department of the Treasury's Bureau of the Public Debt made savings bonds available for purchasing and redeeming online. U.S. savings bonds are now only sold in electronic form at a Department of the Treasury website, TreasuryDirect, with the exception that paper Series I savings bonds can be purchased with a portion of a federal income tax refund using Form 8888.
As of 2023, redeeming savings bonds is very difficult, as most banks decline to do so. The New York Times reported that the reasons banks gave for this were "the equivalent of 'sorry, we just don’t feel like it.'" Where bonds are accepted, redeeming them can be a very onerous and time-consuming process.
Currently issued bonds
There are two types of savings bonds currently offered by the Treasury, Series EE and Series I.
Series EE
are guaranteed to double in value over the purchase price when they mature 20 years from issuance, though they continue to earn interest for a total of 30 years. Interest accrues monthly, and is compounded semiannually, that is, becomes part of the principal for future interest earning calculations. If a bond's compounded interest does not meet the guaranteed doubling of the purchase price, Treasury will make a one-time adjustment to the maturity value at 20 years, giving it an effective rate of 3.5%. The bond will continue to earn the fixed rate for 10 more years. All interest is paid when the holder cashes the bond.
For bonds issued before May 2005, the interest rate was an adjustable rate recomputed every six months at 90% of the average five-year Treasury yield for the preceding six months. Bonds issued in May 2005 or later pay a fixed interest rate for the life of the bond. Paper EE bonds, last sold in 2011, could be purchased for half their face value; for example, a $100 bond could be purchased for $50, but would only reach its full $100 value at maturity.