Government E Bonds

Government e bonds (or series E bonds) were first issued by the US Government in 1941 as a way to fund the war effort (ie, WWII). To set an example for citizens, President Franklin Delano Roosevelt was the first official customer, buying his e bond from then Secretary of the Treasury, Henry Morgenthau. Several fund-raising campaigns called "drives," took place to ensure the flow of money continued during war-time. The first war loan drive was from November 30, 1942 to December 23, 1942, the second from April 12, 1943 to May 1, 1943, and the third from September 9, 1943 to October 1, 1943. Originally, government e bonds were sold in denominations of $25, $50, $100 and $500 ($5000 and $10,000 bonds were added later) with members of the armed forces being able to purchase a $10 bond. The e bonds earned 2.9% interest and were sold at 75% of their face value. The guaranteed minimum investment yield for these bonds was 4%.

Government bonds generally are low-risk investments for the buyer and they help finance the national debt. When one buys a government bond, they are actually lending money to the government, and the government in turn is promising to repay the buyer in addition to a specified annual return. These types of bonds are stable, predictable, low-risk investments compared to stocks, but they are not going to make one rich. However, the buyer is assured of a steady stream of income from annual returns.

In 1991 Government E Bonds were replaced by the Series EE bond. Bonds issued after May 2005 have a fixed coupon rate (ie, rates are set twice a year, in May and November and these apply to all issuances for the following six months). Today's Series EE bond is interest-bearing, non-marketable, and guaranteed to at least double in value over the initial term of the bond, usually 20 years. In addition, the interest from these bonds is typically exempt from local and state taxes. They must be held for at least one year before they can be redeemed, and if they are redeemed earlier than five years, a penalty of 3-month's interest will be applied.