What Are Savings Bonds?
Back in the 1930s, when Treasury Savings Bonds were created, there was little direct investment between the average citizen and the U.S. government. The small investor could not afford much, and the only way to attract investors was with a program guaranteed to return the principal investment over time with at least a small amount of interest. That notion led to the creation of the savings bond.
Savings bonds and small investors. Savings bonds were introduced in 1935 by the Secretary of the Treasury at that time, Henry Morgenthau, Jr. The idea of the government issuing debt to investors was not new in the country. In fact, war bonds dated back to the Revolutionary War. However, previous debt issued by the government could be sold from investor to investor, making the investment speculative and potentially risky, depending on the level of interest rates in the country at the time. Savings bonds, instead, had a fixed value and could not be sold to other investors. The bond represented a fixed contract with the U.S. government and guaranteed a modest, but reliable level of interest over time.
Baby Bonds. The first four series of savings bonds issued in the country were called “Baby Bonds.” Series A-D bonds were created between 1935 and 1941 and were sold in denominations as small as $25 and up to $1,000. Investors paid about 75 percent of the face value and were promised the full face value when the bonds matured in 10 years. That guaranteed a yearly interest rate of about 2.9 percent. These bonds, sold only through the U.S. Post Office, raised about $4 billion for the government.
Series E bonds. The Series E bonds were created during World War II as a way to encourage significant investment in the government at a time when money to support war-time production was badly needed. The Series E Savings Bonds were marketed unlike any of the other bonds before them. Large companies were encouraged to include a savings bond program that allowed workers to have a portion of their paycheck invested automatically in the Series E bond. Commercials urging Americans to buy bonds were filmed by movie stars and other celebrities. When it was introduced in 1941, the Series E bond was called the “Defense Bond” and then known as the “War Bond” from 1942 to 1945. The maturity of the bond was extended to 30 or 40 years and the Series E bonds were finally discontinued in 1980 and replaced with the EE Bond series, which continues to be issued today.