# War Bonds Explained: History, Features, Pros & Cons

## What Is a War Bond?

A war bond is a debt instrument created by governments to raise money for military operations during conflict. Governments often encourage citizens with patriotism to invest. These bonds were usually zero-coupon securities sold at a discount; investors were paid back at maturity. The United States, the United Kingdom, and Canada issued war bonds during major conflicts, such as World War I and World War II. While they helped governments fund wars and gave citizens a way to contribute, the returns were often modest.

### Key Takeaways

*   War bonds are government-issued debt securities to fund military operations during conflicts.  
    
*   These bonds were often sold below face value and did not pay regular interest.  
    
*   Emotional and patriotic appeals were used to encourage the public to purchase war bonds.  
    
*   Governments used war bonds to quickly raise funds and reduce inflation by removing excess money from circulation.  
    
*   Despite their advantages, war bonds offered lower yields than other securities and carried the risk of loss if the war effort failed.

## How War Bonds Work 

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](https://www.investopedia.com/terms/z/zero-couponbond.asp) 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, also known as baby bonds, had a lower face value than standard bonds. This made them more affordable for retail investors. War bonds were nontransferable, meaning only the original purchaser could redeem them. War bonds originally had a 10-year maturity, which resulted in a 2.9% return.

Congress allowed bonds sold from 1941 to 1965 to [accrue interest](https://www.investopedia.com/terms/a/accruedinterest.asp) for 40 years, while those after 1965 accrued for 20 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.

## Key Features of War Bonds

U.S. war bonds differed from other Treasury securities.

War bonds (or Liberty bonds, depending on the year) were [zero-coupon securities](https://www.investopedia.com/terms/z/zero-couponbond.asp), meaning that they did not pay any interest over the lifetime of the bond. The bond's price was discounted, usually 50%-75% of its face value, but you received full value at maturity.

The maturity date depended on the issue year; bonds from WWII matured in ten years. Congress later amended the law so that war bonds could continue to accumulate interest over 40 years.

## The Evolution and Impact of War Bonds

Other countries, like Canada, Germany, the UK, and Austria-Hungary, also issued war bonds.

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.

Advertisements for the bonds were carried out through multiple media such as radio stations, newspapers, magazines, and newsreels in theaters to reach the American people. Hollywood stars like Bette Davis and Rita Hayworth helped promote war bonds by touring the country. People saved for War Bonds by contributing 25 cents at a time, while Girl Scouts sold 10-cent stamps.

Following Russia's 2022 invasion, Ukraine issued war bonds to fund military expenses. On March 1, just after the invasion began, the Ukrainian government announced that it had raised $270 million from a one-year bond with a yield of 11%. The country issued several successive bond issues, raising a total of nearly $1 billion.

## Pros and Cons of Investing in War Bonds

War bonds let governments quickly raise money for military campaigns, often appealing to patriotism to offer yields below market rates. They also help reduce inflation by removing extra money from the economy.

Investors might profit by speculating on war outcomes. They can buy bonds from a temporarily defeated side, expecting a reversal. However, there's a risk of losing the investment if the country loses.

U.S. war bonds weren't ideal investments, as they paid no interest and offered lower profits than other bonds. Moreover, if a country borrows heavily to finance its war efforts, it will have to repay all of those bills upon the conclusion of the war.

Pros

*   War Bonds could be purchased for a price that was below their face value.
    
*   War Bonds were guaranteed by the U.S. government.
    
*   Investors experienced a sense of pride and patriotism by helping the nation in times of war.
    

Cons

*   Paid a lower interest rate than other securities in the market.
    
*   War Bonds did not pay interest payments throughout the life of the bonds.
    
*   As with any security, War Bonds carried the risk of a loss if sold before maturity for a lower price than the purchase price.
    

## Historical Examples of War Bonds in Action

In the U.S., the sale of war bonds was overseen by the War Finance Committee. War bonds were initially known as Defense Bonds and were first issued as [Liberty Bonds](https://www.investopedia.com/terms/l/liberty-bond.asp) in 1917 to finance the United States government's participation in World War I. Through the sale of these bonds, the government raised $21.5 billion dollars for its war efforts.

After the Japanese attack on Pearl Harbor, on Dec. 7, 1941, the U.S. entered the Second World War, and Defense Bonds were renamed War Bonds. More than 80 million Americans purchased war bonds and brought in over $180 billion in revenue. The bonds sold for 50% to 75% of their [face value](https://www.investopedia.com/terms/f/facevalue.asp) and had denominations ranging from $10 to $1,000, depending on the year they were issued.

## How Do You Buy Ukrainian War Bonds?

Ukrainian citizens and residents can buy war bonds through a Ukraine-licensed broker or bank. Although overseas institutional investors can also buy war bonds, it is not clear if they will be available to foreign retail investors.

## What Is the Purpose of War Bonds?

War bonds allow a country to raise money for its military expenditures, without having to resort to heavy taxation or inflationary monetary policy. However, governments must be cautious of the risk that they will assume more debt than they can repay.

## How Much Are War Bonds Worth Today?

The U.S. government has an online tool to calculate the current value of war bonds. For a Series E bond issued in 1942 with a face value of $100, the current value as of September 2022 would be $377.40.

## The Bottom Line

War bonds allow a country to raise emergency funds to support military expenditures, at a lower cost than a typical sovereign bond issue. However, there is risk involved. War bonds tend to offer a lower yield, and investors assume the risk that they may lose the investment if the country defaults.

> **Article Sources**
>
> 1.  CNBC. "[Ukraine Raises $270 Million from Sale of War Bonds as Russia's Invasion Continues](https://www.cnbc.com/2022/03/02/ukraine-raises-270-million-from-sale-of-war-bonds-to-fund-army.html)."
>     
> 2.  CNN. "[War Bonds, NFTs and Crypto: How Ukraine Is Funding Its Defense](https://www.cnn.com/2022/04/01/business/ukraine-war-bonds-crypto-nfts/index.html)."
>     
> 3.  Ministry of Finance. "[How to Buy Military Bonds](https://mof-gov-ua.translate.goog/uk/news/iak_pridbati_viiskovi_obligatsii-3368?_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=en&_x_tr_pto=wapp)." (in Ukrainian).
>     
> 4.  TreasuryDirect. "[Calculate the Value of Your Paper Savings Bonds](https://treasurydirect.gov/BC/SBCPrice)."