Freedom Shares: What They are, How They Work

What are Freedom Shares?

Freedom shares, also known as savings notes, are original issue discount bonds issued by the U.S. Treasury between May 1967 and October 1970 with a 30-year maturity.

Understanding Freedom Shares

Freedom shares were sold in denominations of $25, $50, $75 and $100. They were issued on a discount basis at 81% of face value. For example, a $100 face value bond would have been purchased for $81. Freedom shares reached final maturity 30 years from the issue date.

When they were introduced in 1967, Freedom shares were sold through payroll savings plans or "bond-a-month" plans offered via banks. They were not available for lump sum purchases over the counter. In addition, Freedom shares could only be bought with a simultaneous purchase of Series E Bonds, and buyers were limited to purchasing $1,350 in maturity value each year. Freedom shares paid a higher interest rate than Series E Bonds. By linking the two programs, treasury officials sought to avoid tapping into money that was already destined for other government savings programs.

The original term to maturity was four and a half years. Optional extensions of maturity of two 10-year periods and an additional five-and-a-half-year period were granted, making the total interest-earning life span 30 years.

Savings note interest is reportable for federal income tax purposes for the year in which the note is redeemed, reaches final maturity, or is otherwise disposed of, whichever occurs first. The note owner may report interest each year as it accrues. However, such an election must apply to all of an owner's accrual-type securities. Freedom shares can be redeemed at any Federal Reserve Bank or branch, or any financial institution designated as a paying agent of government savings bonds.

Freedom Shares and Series E Bonds

The U.S. Treasury sold Series E Bonds between 1941 and 1980. They were introduced amid rising defense expenditures and growing national debt in the lead up to U.S. involvement in World War II. The bonds were sold via a national volunteer program that enlisted help from financial institutions, community leaders, volunteer committees, and advertising and communications media. Bankers, business executives, newspaper publishers, and Hollywood entertainers also promoted the bonds.

Like the Series E Bond, the sale of Freedom shares were tied to U.S. war efforts. President Lyndon B. Johnson announced the program amid the U.S. escalation of its war in Vietnam.

Many Fortune 500 company executives served on the U.S. Savings Bonds Volunteer Committee, which promoted the purchase of savings bonds via payroll deductions between 1963 and 2003.

The U.S. Treasury department claims the Series E bond became the world's most widely held security. It was sold as a "defense bond" in 1941, a "war bond" during U.S. participation in World War II, and a regular U.S. savings bond in the years following. In 1980, Series E Bonds were replaced by Series EE Savings Bonds.