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Savings-Bonds-Alert: Where does the money go?

Friday, December 10, 2004

Where does the money go?

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 To cover the amount the federal government is spending over and above what it takes in with taxes, the U.S. Treasury borrows money. Savings bonds are one of the ways the Treasury borrows, although savings bonds are a relatively minor source of funds compared to marketable Treasury securities. When you cash one in, the money comes from the Treasury. The Treasury's money comes from taxes and from borrowing. So it's a mix of those. There's no reserve fund, just as you don't have a reserve fund to pay back a car loan or home mortgage. If the government had the money for a reserve fund, it wouldn't need to borrow to begin with.


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