War bonds are used during wars to help finance the efforts of a country's fighting men and women. During wars, the economy becomes over-stimulated which typically leads to inflation. This inflation makes it difficult for countries to pay for their war efforts or for domestic efforts taking place at the same time. War bonds are a way for countries to raise money and pay for their wars.

See Introduction to Savings Bonds for information from the Securities and Exchange Commission on different types of bonds. The Treasury also runs an explanatory site aimed at kids.

In the United States, war bonds were first introduced during World War I. Then known as Liberty Bonds, they were a way for the country to pay for its participation in this costly war. It is estimated that the U.S. spent over $30 billion in World War I and that much of that money was raised by war bonds. Canada introduced its own war bonds during this time, called Victory Bonds.

Visit U-S-History.com for information on the different war bonds used throughout history. For a basic guide to war bonds and how they work, see What Are War Bonds?

The government first issued this bond in 1941 and continued the system until 1980, when it shifted to a different program. Prior to 1941, the United States used U.S. Savings Bonds and United States Postal Service Bonds. Secretary of the Treasury Henry Morgenthau issued the first bonds, although at that time they were known as Liberty Bonds. They didn't become known as war bonds until the U.S. officially entered World War II. The first purchaser was President Franklin D. Roosevelt, who bought a war bond on May 1, 1941. During World War II, the United States shifted to a bond called the Series E Savings Bond or Series E U.S. Savings Bond.

War bonds sold from 1941 to 1965 accrued interest for 40 years; any bond issued after 1965 accrued interest for 20 years. Americans who purchased these bonds did so at a 75 percent rate: for example, a $100 bond cost $75 to purchase. The interest rate on the bonds matured according to market trends and the current market rate. They were available in denominations of $25, $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. The bonds were non-transferable, meaning that only the purchaser could redeem the bonds in the future.

The American Homefront discusses the Homefront during World Wars I and II. Additional pictures and images of the campaigns used by the government are shown at The Library of Congress and National Archives. Information on how women helped sell war bonds is discussed at Women and the Home Front, and Women and War lists more information on how women used war bonds.

To sell the war bonds, the government turned to some popular artists such as Norman Rockwell. Posters showcasing the artists' work appeared across the country to promote war bonds. These posters showed Americans colorful pictures of what they were supporting and encouraged individuals to get involved in the war effort. The posters showed that even those at home could still help with the war effort. Bond promoters also released music and songs about buying war bonds, and celebrities led rallies urging the people to buy bonds.

War bonds are no longer sold as they were during World War I and World War II, so how does the United States government plan to pay for a huge, growing deficit? To date, the United States has contributed approximately $602 billion for the war efforts in Iraq and Afghanistan. The question is, where are the funds coming from and who is paying for them? Former President Obama declared the largest U.S. deficit since World War II, an astonishing $1.75 trillion.

According to defense officials, the president will ask Congress for more than $200 billion to fund U.S. war efforts for the next several years. The main concerns on the minds of most Americans are, “What about my future and the future of my children?” and “Do we have to bear the burden of these tremendous costs?” Many financial experts expect that today’s voters, as well as their children and grandchildren, will be paying for this deficit for decades.

It is too soon to tell exactly what plans will be adopted to fund the rest of the war. With the budget deficit expected to balloon to $1.083 trillion in 2020, excluding high-level coronavirus impacts.

About the Author

Written by Michael Marcin of Crest Capital. When Mike was little, there was no such thing as the internet (or color TV). Today, he oversees all operations and finance for Crest Capital, a national equipment finance lender. Mike writes on a variety of business topics including equipment, vehicle, and software finance and associated tax implications.