Bearer bonds are bonds that can be redeemed by whoever is holding them -- or the "bearer" of the bonds. They have an obvious appeal to people who are interested in getting interest on money they don't want "on the books".
Because of this, they're a concern for governments which are fighting drugs and organized crime -- and tax evasion.
Can you still purchase bearer bonds? Are they legal in the USA? And how do you redeem a bearer bond? Let's analyze it in this article.
History of Bearer Bonds
Bearer bonds originated in the Civil War when raising funding for military ventures was critical for almost all forms of government. The bonds provided an extra incentive to the holder to purchase -- because they could be owned anonymously, and could be sold for cash or trade before the time came for redemption.
As time went on, many countries began to either outlaw bearer bonds or heavily regulate them. In the US, the issuance of new bearer bonds after 1982 was essentially banned. It's still legal ot own them -- but issuing new bonds isn't possible in the jurisdiction of the US.
Pros and Cons of Bearer Bonds
A bearer bond is essentially an anonymous way to invest -- especially if one acts as a sort of middleman for the bonds. It allows off-the-books speculation in a very, very small subset of the bond market.
The advantages are anonymity and the ability to not report to one's government any gains from the trade. This is, of course, not something recommended in the slightest -- doing this in the wrong way can get the trader in jail for quite some time.
The obvious cons of bearer bonds is that they can be stolen and utilized easily since they can be redeemed by anyone. They're worth more than cash, because they pay an interest and are even a novelty.
Where to Buy Bearer Bonds
You can still buy bearer bonds in many countries, most notably throughout Central and South America. One of the most trusted places to buy bearer bonds now is a small country in Luxembourg.
Bearer bonds have an edgy reputation because of the connection with the drug trade, organized crime, and tax evasion. Still, they're a potential financial tool for people looking for privacy as well as the ability to earn interest on "physical paper" assets.