What does the government do with Savings Bond money?

Friday, December 10th, 2004
Categorized as: Savings Bond FAQ

When I buy a savings bond, what does the government do with that money? Does it stay in a fund or get used to do government business? When I cash one, where does the money come from? Does the US have a reserve fund set aside to pay bonds and bond interest? Or are they paying out of current receipts?

Tom’s response

The U.S. government spends inordinate amounts of money each year – lots, lots more than it collects in taxes.

To cover the amounts the government spends above what it takes in through taxes, the Treasury borrows the money.

Savings Bonds are one of the ways the Treasury borrows money, although Savings Bonds are very minor compared to the two largest sources of borrowed funds, marketable Treasury securities and the Social Security Trust Fund.

When you redeem a Savings Bond, the money comes from the same Treasury funds, which, as we’ve seen, are a mix of tax receipts and borrowing.

There’s no reserve fund, just as you don’t have a reserve fund to pay back a car loan or home mortgage. If you had the money for a reserve fund, you wouldn’t need to borrow to begin with, and neither would the government.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

5 Comments

On March 20th, 2009 Lin Dobies said:

This was helpful but I am trying to find out WHAT the government spends the money from the bonds ON. Does someone publish a list of these expenditures, such as; schools, roads etc.? Also, whst percentage on various things? I can’t find an answer to this anywhere on the net.

On March 20th, 2009 Tom Adams said:

Lin – Wikipedia has a good breakdown here.

Tom Adams

On May 1st, 2009 JAY SMITH said:

I BONDS EE BONDS THE WORKING PERSON ALWAYS GETS IT UP THE YOU KNOW WHAT.

On July 8th, 2009 Eddy said:

According to the Wikipedia link above:

” Spending: $261 billion (+9.2%) – Interest on National Debt “.

This could suggest that some (not all) New Savings Bond money is spent on payment for Redeemed Bonds. Uncle Sam’s ironic shell game.

On July 9th, 2009 Tom Adams said:

Eddy – Money is like water in that once it gets in the government’s tank it’s impossible to say what goes where.

On the other hand, it’s interesting to think of the Savings Bond program as later investors paying off early investors.

Whether something is deemed a Ponzi scheme or not depends on whether it eventually fails. All we know is it hasn’t failed yet, so it’s not a Ponzi scheme yet.

Tom Adams

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on Savings-Bond-Advisor.com. I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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