Which statement best defines a savings bond?

A savings bond is defined as a government-issued debt security, which means that it is a way for the government to borrow money from investors. When individuals purchase savings bonds, they are effectively lending money to the government in exchange for a promise to be repaid at a later date with interest. This financial instrument is typically low-risk, backed by the full faith and credit of the government, making them attractive to conservative investors seeking a safe place to grow their money.

The interest rate on savings bonds is often fixed or may be tied to inflation, offering a predictable return. They are designed to be held for a long period, usually several years, before they fully mature, at which point the investor can redeem them for their face value plus any accrued interest. This structure helps encourage savings among individuals while providing essential funding for government projects. Understanding this definition helps underline the characteristics that differentiate savings bonds from other investment vehicles, such as stocks, loans, and real estate.