Why does the government isuee savings bonds?

Answer 1

To raise capital to pay for things like highways and to pay down debt. Same reason companies do. They can get money easier this way with a promise to pay you back with interest.

Answer 2

It's a nasty habit they got into 90 years ago. To raise cash for WWI expenditures, Liberty Bonds were sold to workers. For an amount as low as, say $ 25, you got a pretty certificate that allowed you to recover your $ 25 plus stated interest at some time in the future. There was alot of hoopla associated with their sales, including fund drives starring favorite motion picture stars of that day.

It was a "good news, bad news" proposition. The good news was that it offered the worker a way to save money, give gifts, etc at a known interest rate. The bad news was that the worker usually earned less interest than a purchaser of a typical 1000+ dollar note or bond did, the arguement being that the internal overhead cost justified the interest difference.

The routine was repeated in WWII, but by this time, Liberty Bonds became Savings Bonds. In fact, you could go to the post office, purchase savings stamps for as little as 25 cents each, stick the stamps in a specially-designed booklet, and turn it in when full for a bond (minimum purchase $18.75 for a $25 maturity in 10 years). These, although for most people, a forgotten memory, were only discontinued a few years ago.

Savings bonds became permanent after WWII, since it did allow the Treasury to issue debt certificates at a lower rate than that paid to big buyers. However, the interest rate paid lagged behind that paid by banks until the 1980s. The major reason was that the ability to change interest rates by the federales was more cumbersome than in the open market.

One of the more noteworthy, good actions by the Reagan administration was to change Savings Bonds interest rate to be more competitive with those in the market, and a variable rate. Other innovations are the HH retirement bonds and the zero-interest discount bonds.

Answer 3

The government issues bonds of various types (not just savings bonds) to finance its deficit spending. They are essentially borrowing money in order to pays their bills.

Savings bonds are designed to make it easy for small investors to buy bonds. You can buy them in much smaller amounts than regular bonds.