Mirror, Mirror on the Wall, Which Issue of Currency if the Rarest of them ALL?

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The mirror should respond, “Interest Bearing Notes”, or else there’s something wrong with your mirror. 🙂

According to Paper Money of the United States by Arthur L. and Ira S. Friedberg, Interest Bearing Notes are the rarest issue of all United States currency. Part of the reason for their rarity is obvious: the bearer earned money while possessing the note, and could collect his or her principle plus interest upon redemption. As a result, most people didn’t hold onto these notes unless they were well-to-do or absentmindedly lost them among personal belongings.  After all, who wouldn’t want to collect 3% interest (or more) on a $10-$5,000 investment in the mid 1800’s?

Interest Bearing Notes were issued to help stabilize the finances of the nation. The government needed operating cash and the banking system needed to be supported. That meant private citizens needed an incentive to invest in the United States, which was quite a leap of faith in the years leading up to the Civil War. These notes were a close cousin of Treasury Bonds, the usual form of financing the government.

Notes were issued for 60 days, 1 year, 2 years, and 3 years. Higher interest was paid on larger investments for longer periods of time. This table lists the issue dates and investment term length:

Table of Interest Bearing Note Issue Information

Term Date of Issue Interest Rate Denominations
60 days March 2nd, 1861 6% $50, $100, $500
1 year March 3rd, 1863 5% $10 – $5,000
2 years March 2nd, 1861 6% $50 – $1,000
2 years March 3rd, 1863 5% $50 – $1,000
3 years July 17, 1863 7.3% $50 – $5,000
3 years June 30, 1864 7.3% $50 – $1,000?*
3 years March 3, 1865 7.3% $50 – $1,000

* These $1,000 Interest Bearing Notes were listed as “probably issued” in the Friedberg guide. It is unclear if any official records exist, let alone if any notes are still outstanding.

According to the Friedberg guide, the aggressive 7.3% interest rate on 3 year Interest Bearing Notes “was the highest ever paid by the government”. Also, interest was payable on a daily basis. Some $50 notes had 1 cent interest paid per day, while $100 notes had 2 cents per day. See Paper Money of the United States  Part IV for further information.

Another interesting feature of some of the 3 year notes – particularly those issued last on March 3rd, 1865 – were the redeemable coupons printed next to the full engraving of the note itself. These coupons could be clipped off and redeemed by the bearer every 6 months of a 3 year term. Interestingly, only 5 coupons were supplied with a 3 year note, when in fact there are 6 half-year periods in the space of 3 years. In effect, the 6th coupon was the rest of the note (less the 5 coupons removed previously). When the note was finally redeemed, the bearer was paid the principle plus the 6 month interest accrued.

Overall, interest bearing notes were a potentially risky, but generally safe way to fund the government’s monetary policy initiatives. The 7.3% interest rate is legendary and will most likely NEVER be matched again. Today’s Certificate of Deposit rates barely clear 1.0% for jumbo certificates. Similarly, 2 and 5 year Treasury Bond Rates don’t even come close to 1.0%. 10 year and 30 year bonds do better, but most people can’t tie up too much capital in a 30 year bond investment. That money is better spent on real estate or paper money collectibles 🙂 . (Seriously – you stand to make more investing in rare currency or a good piece of property at this time).

Let’s have a look at some known examples of Interest Bearing Notes:

Fr. 197a 1863 $20 Interest Bearing Note - Chittenden-Spinner - PMG Very Good 8 NET - Realized $8,625 on April 18, 2008
Fr. 197a 1863 $20 Interest Bearing Note – Chittenden-Spinner – PMG Very Good 8 NET – Realized $8,625 on April 18, 2008

 
 
 
 

 

 

 

 

 

 

 

 

 

 

Think this note is a low-ball at VG 8? It may not look great but it’s pretty damn rare. A $8,625 hammer price isn’t exactly chump change either!

Fr. 196a 1863 $10 Interest Bearing Note - Chittenden-Spinner - PCGS Very Fine 20 - Realized $25,300 on January 7, 2011
Fr. 196a 1863 $10 Interest Bearing Note – Chittenden-Spinner – PCGS Very Fine 20 – Realized $25,300 on January 7, 2011

 
 
 

 

 

 

 

 

 

 

 

 

 

..and this note is considered “Common” for Interest Bearing Notes. $25,300 in 2011 is a good price. Don’t expect to see this note appear anytime soon.

Fr. 209 1861 $500 Interest Bearing Note - Unique in Private Hands - Choice Very Fine - Realized $299,000 on February 19, 2005
Fr. 209 1861 $500 Interest Bearing Note – Unique in Private Hands – Choice Very Fine – Realized $299,000 on February 19, 2005

 

 

 

 

 

 

 

 

 

 

 

 

This note appears in Paper Money of the United States courtesy of renowned numismatist Donald H. Kagin. This one hasn’t been seen on the market publicly since 2005. If it were to be auctioned today, the current owner would likely turn a profit despite the fact that he or she purchased the note prior to the 2008 financial crisis.

So there you have it: Ultra Rare, Ultra Valuable, Ultra Cool Interest Bearing Notes. Lyn Knight Currency Auctions is offering Compound Interest Bearing Notes (more common) during his 2013 CPMX auction: View the Compound Interest Bearing Notes at 2013 CPMX Auction – click here.

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