Service Certificates

Service Certificates

Investopedia / Mira Norian

What are Service Certificates?

Service certificates are similar to bonds in that they had a face value and promised payment, including compound interest, to eligible World War I veterans at the maturity date.

Key Takeaways

  • Service certificates are similar to bonds in that they had a face value and promised payment, including compound interest, to eligible WWI veterans at the maturity date.
  • Service certificates were granted to WWI veterans under the World War Adjusted Compensation Act of 1924.
  • Service certificates, formally known as Adjusted Service Certificates, matured in 20 years.

Understanding Service Certificates

Congress passed the World War Adjusted Compensation Act of 1924, which granted service certificates to veterans of World War I. These service certificates were similar to a life insurance benefit. Each had a face value and promised payment at maturity, including compound interest. Formally known as Adjusted Service Certificates, they matured in 20 years, which in this case was 1945. Veterans were entitled to $1.00 for each day of home service and $1.25 for each day of overseas service. The face value of the certificates were capped at $500 for any vet who served domestically and $625 for those who served abroad.

The long-term maturity date of these service certificates presented problems for holders and the U.S. government. In the 1930s, in the midst of the Great Depression, war veterans were in desperate need of funds and protested to demand immediate cash payment of the service certificates. Thousands of war veterans and their families, known as the "Bonus' Army," marched to Washington D.C. to persuade Congress to move up the date of maturity of these certificates.

Though this march initially failed to speed up the payments, Congress in 1936 passed a bill allowing veterans to collect the service certificate payment. The Adjusted Compensation Payment Act provided for the immediate payment of the face value of service certificates minus outstanding loans and unpaid interest. The Act replaced the service certificates with non-negotiable but immediately redeemable service bonds issued by the Treasury Department in denominations of $50, with odd amounts between $50 multiples paid by check. For example, if a veteran was to receive $1,172 on his service certificate, he was paid twenty-three $50 service bonds and written a check for the $22 difference. These bonds are formally referred to as Adjusted Service Bonds.

The bonus bonds paid interest at 3% annual interest rate, higher than the 2.5% interest rates on bank savings accounts. Although the service bonds could not be sold, they could be redeemed with the Treasury for cash at any time after June 15, 1936. While the veterans had the option of holding the bonds until their maturity date in 1945, most veterans cashed in almost immediately. In the first two weeks of June 1936, veterans cashed in 46% of their total bonus.

The cash payments constituted an efficient economic stimulus. Because the program required little government administration, the money paid to veterans was likely to be spent without delay, and the entire process did not require the long lead time of a public works program.

Article Sources
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  1. U.S. Congress. "World War Adjusted Compensation Act," Pages 122 and 125. Accessed Mar. 5, 2021.

  2. Library of Congress. "World War and Veterans." Accessed Mar. 5, 2021.

  3. U.S. Congress. "Adjusted Compensation Payment Act, 1936," Pages 1099-1101. Accessed Mar. 5, 2021.

  4. Journal of Post Keynesian Economics. "The Veterans' Bonus of 1936," Accessed Mar. 5, 2021.

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