War bonds are government-issued savings bonds that are used to finance a war or a military action. In the United States, the last official war bond was the Series E Bond issued during the Second World War. These bonds generate capital for the federal government and they make civilians feel involved in their national militaries; exhortations to buy war bonds are often accompanied with appeals to patriotism and conscience.
Bonds are a special type of security. They are issued by an agency that wants to generate capital, and the people who purchase them are essentially loaning money to the issuing agency. In return for the loan, the bond earns a set interest rate, and the purchaser can redeem the security for its face value at a later date. Government issued bonds tend to have a yield that is below market value, but they are considered very safe, stable investments.
In World War I, Americans could buy “Liberty Bonds,” while other nations issued an assortment of bonds and savings stamps to finance their war efforts. The language used in the promotion of war bonds was often quite florid, drawing the purchaser into the transaction with an appeal to his or her patriotism. These bonds were available in a wide range of denominations to make them affordable to all, ranging from small stamps that school children could purchase to bonds in very large denominations for wealthier individuals.
During World War II, a number of companies encouraged citizens to buy war bonds. In addition to funding the government, these securities also reduced the amount of currency on the open market, with the hope of keeping inflation rates down. Many Americans think of the Series E Bond when they hear the term. This bond was initially marketed as a “defense bond” in 1935 and, with the outbreak of war, the Treasury switched to calling it a “war bond.” Series E Bonds were available from the Treasury until 1980.
The funds from the sale of these bonds were used to finance the military. American Patriot Bonds may seem similar, but their sale proceeds actually go into a general fund, rather than supporting the military specifically. For people who dislike the idea of supporting military action but want the safety and stability of government securities, other Treasury securities are available for sale, including treasury bills, notes, and general bonds.