War Bonds: Definition and What to Know

War bonds are issued by governments to help fund military operations during wartime. When you purchase a war bond, you loan money to the government in exchange for a fixed interest payment. Interest accrues over the years, so the longer you hold the bond, the greater your redemption value.

As of 1980, U.S. war bonds — as represented by the Series E bond — were discontinued, although they were still earning interest until 2010. So, if you are still holding a war bond, now could be a good time to figure out what it's worth and how to redeem it.

What are war bonds?

To understand war bonds, first, you need to first know how bonds work. A bond is a loan you make to the issuer. In the case of war bonds, the issuer is the U.S. government. In return, you earn interest on the bond. How long that interest is paid and how much you earn depends on the bond's terms.

War bonds were a type of government savings bond that financed military efforts, such as the purchase of tanks and guns during a war. War bonds were first issued in 1917 as Liberty Bonds to finance World War I. A second series of similar bonds, called Series E Defense Savings Bonds, colloquially known as Defense Bonds, was released in 1941 under President Franklin D. Roosevelt to finance World War II operations.

During both wars, the U.S. government conducted war bond drives. These campaigns, which included radio, television and newspaper ads, were designed to encourage Americans to buy war bonds. They were largely successful and helped the government raise $5 billion in Liberty Bonds during World War I. By the end of World War II, around 85 million Americans held war bonds, as illustrated by the famous poster depicting a raised hand holding cash in front of the Statue of Liberty.

The term "war bonds" didn't gain popularity until after the 1941 attack on Pearl Harbor. The government has since used Series EE savings bonds to finance war efforts, although these are no longer called "war bonds." Following the 9/11 attacks, Series EE Bonds were reissued as special-edition Patriot Bonds. The government used the proceeds from these bonds to help finance its war on terrorism.

Series E war bonds didn't make regular interest payments. The bonds were sold at a discount to their principal, or face value, and interest accrued over time. For bonds issued between May 1941 and June 1980, the initial price was 75% of the face value. So investors would, for example, pay $37.50 for a bond of $50 face value. Later, when redeeming the war bond, they received more than the original price paid as well as the interest accrued.

War bonds were initially issued with a fixed term of 10 years, meaning they stopped increasing in value after that time. However, some war bonds could continue accruing interest for 30 to 40 years with extensions. This meant your war bond increased in value through 2010.

What are my war bonds worth?

The U.S. Treasury provides a free online savings bond calculator to help you determine what your paper war bonds are worth. However, you can't use the site to buy bonds or check whether you own any bonds.

You'll need to enter information about your paper bond, including:

• The bond series (E, EE, I, or Savings Note)
• Denomination ($10, $25, $50, $75, $100, $200, $500, $1,000, $5,000, or $10,000)
• Issue date (found in the upper right corner)

If you know the serial number, which is located in the upper right corner just above the issue date, you can use that to look up the bond, but it's not necessary unless you want to store the information for future reference.

Once you click "calculate," the site will show you what your bond is currently worth, its interest rate, and when it matures and stops earning interest. For example, a $50 Series E bond issued in May 1941 matured in 1981 and is worth $181.18 today. The bond was originally sold for $37.50, so the total interest earned is $143.68.

Keep in mind that you'll need to pay taxes on your bond when you redeem it. War bonds are subject to federal income tax. They may also be subject to federal estate, gift and excise taxes, as well as state inheritance and estate taxes. So, the final value you receive from your war bond may be less than what the calculator shows.

How do I redeem war bonds?

How to redeem war bonds depends on whether they are paper or electronic bonds.

How to redeem paper war bonds

There are two ways to redeem paper war bonds: at a bank or through the mail.

The easiest way to redeem paper war bonds is to cash in the savings bond at a local bank that offers savings bond redemptions. Note that not all banks offer this service. Some banks also have a dollar limit on how much can be redeemed at one time, so be sure to check beforehand.

You should also check what identification is needed to redeem the bond and if you must already have an account at the bank. If you've inherited the bond, you'll likely need the bond owner's death certificate.

Note that paper bonds must be redeemed in full.

To redeem a paper war bond by mail, you must first have your signature certified in the "request for payment" section at the back of the bond. You can then send your bond along with FS Form 5396, which requires you to send your Social Security number and direct deposit information to the following address:

Treasury Retail Securities Services
P.O. Box 214
Minneapolis, MN 55480-0214

You must be the owner or a co-owner listed on the bond for the U.S. Treasury to redeem it unless you've inherited it. There's a separate procedure for redeeming inherited savings bonds that depends on whether it's a paper or electronic bond.

How to redeem electronic savings bonds

Series E war bonds were only issued in paper form. The first electronic bonds weren't issued until 2002, after Series E bonds were discontinued. If you purchased an electronic savings bond, such as a Series EE Patriot Bond, through TreasuryDirect — the U.S. Department of the Treasury’s online system for managing bonds — you can redeem your bond by logging into your account.

You can redeem these bonds in increments as small as $25. However, if you redeem less than the full amount, you must keep at least $25 in your TreasuryDirect account.