One of the joys that come with being a grandparent is doing things for your grandkids that will make them remember you in the future. This goes beyond gifting them high-end gadgets, vacations or little gifts here and there.
Gifts that invest in their future will always be cherished. For this reason, it is no surprise that savings bonds have been a quite a popular choice with grandparents for a long time now. However, a lot has changed in the world of savings bonds in the last five years.
For starters, the government has done some digital reformations concerning them. This can make the process of giving them as a gift a bit more complicated than usual. In addition, some people have dismissed bonds because of their less-than-stellar rates.
So are savings bonds even worth investing in? Before you gift you grandchildren of a saving bond, you should do well to explain to them what this iconic staple of the American economy actually is.
Getting hold of a savings bond before was as easy as requesting for one at your local bank. Since 2012 however, a change has been in effect which prevented banks from being able to give out savings bonds. These days, you can only purchase bonds digitally.
In order to purchase the savings bond, you will need to first setup an account online and then provide information like your Email address, Social Security number, Bank account information, Bank routing number, Driver’s license number etc. Here is a step by step guide on gifting a savings bond to your grandchild.
Steps to Buying Savings Bond for Grandchild
- Create a Treasury Direct account: you will first need to create your own account.
- Buy Direct: next, using your account, click Buy Direct and then choose the types of savings bonds you want to buy.
- Register to your grandchild: you will need to register the grandchild you want to gift the savings bond to in the treasury direct (that is if he or she is not already registered). You will need your grandchild’s Social Security Number. And you’ll have to designate them as either the sole owner or primary owner.
- Decide on your amount: you can purchase between $25 to $10,000.
- Pay for the bond: The money can be funded by way of a checking account or other means such as a Treasury Direct account.
- Submit the order: when you have filled all the required details, you can then submit the order to give the savings bond to your grandchild.
- Go to the “Gift Box”: This page in your account will let you select the confirmation number of the bond you want to gift, and will then allow you to digitally deliver it to your grandchild’s account.
The aforementioned are the steps that you must take in order to gift a savings bond to your grandchild. You should however note that your grandchild’s parent or guardian must also take some steps to allow the child to receive the gift bond. Otherwise, you’ll be unable to send the bond to your grandchild.
Are savings bonds still valuable?
Granted, the way people open savings bonds has changed from what was obtainable in the past, but are these savings bonds still as valuable as they once were? One important thing to know is that the Treasury announces bond rates on May 1 and November 1 every year. So you’ll want to take a look at the prevailing rates when making your decision.
Deciding whether a savings bond is a good gift or not is largely dependent on the age of the grandchild in question and the age they are anticipated to cash out on the bonds.
If you think that your grandchild will hold the bond for up to 20 years, then a Series EE savings bond is a good choice. A Series EE savings bond is required by law to double in value over a period of 20 years. This however, will not be the case should the owner of the bond decide to cash out before this time period. If this should happen, the bond will deliver the rate posted when the bond was purchased.
If you think that your grandchildren will cash the money before the 20 year mark, then you can go for a Series I savings bonds. This type of bond pays both a fixed rate and a variable rate. The fixed rate remains the same for 30 years. The variable rate is tied to inflation.
One advantage of a savings bond is that you can take a very hands-off approach once you’ve given your gift. You don’t need to watch over or manage the bond after you have made your purchase in order to get your interest.
The Limits of Savings Bonds
A savings bond is a good choice if you intend to give a grandchild a modest amount of money. This is especially true since the limit for savings bonds is $10,000 per year. You can, however, purchase an additional $5,000 in Series I bonds using money from your tax refund.
If for any reason you will like to give more than this, you will have to work with a financial advisor in order to setup a trust fund or alternative arrangement. You’ll exceed the legal cap for bonds. In addition, you may even discover other options that have better earning potentials for such a large gift.
In conclusion, if you would like to gift your grandchildren with a financial gift that will appreciate over time, then savings bond is a very safe and solid option. They are also great if you want to help your grandchildren save. Children like to spend their money as soon as they get it. With a savings bond, there’s a better chance they will hold onto it.
Even though the rate for bonds are sort of low, they are still a lot better than giving your grandchildren gifts or even giving them the cash physically. In order to create maximum impact, it is advisable to gift your grandkids with a bond when they are still celebrating a single digit birthday so that the bonds will have time to increase in value when they finally need it.
Frequently Asked Questions
1. Should You Buy Savings Bonds For The Grandchildren?
Yes! Buying your grandchild saving bond is considered a safe investment because it is guaranteed by the government of the United States. Savings bonds also are advantageous because you don’t have to pay local and state taxes on any interest earned.
2. Where Can You Buy A Savings Bond For Your Grandchildren?
Here are the places to purchase a savings bond for your grandchildren;
- Go to www.treasurydirect.gov
- Log into your treasury-direct account (or open one in your name)
- Purchase the type of savings bond you wish (Series EE or Series I)
- Deliver the savings bond gift to the recipient’s TreasuryDirect account
3. Can Grandparents Buy Ee Savings Bonds For Their Grandchild’s Education?
It is conditional. For grandparents to purchase bonds for minor grandchildren, the grandparents must create an account, so the gift bonds can be transferred to accounts in the grandchildren’s names, linked to accounts in the name or names of the grandchildren’s parents.
4. How Do You Buy Bonds For Your Grandchild?
You can easily buy savings bonds online at treasurydirect.gov. They can be put in your own name or the name of the child for which they’re being purchased. And if the savings bond is to be a gift, be prepared to provide the child’s full name and Social Security number. The recipient must also have their own TreasuryDirect account. If not, you have the option of holding the gift in your account until one is established for them. You can get them anywhere from $25 to $10,000 in gift bonds.
5. Can You Still Buy Savings Bonds As Gifts?
If savings bonds must be purchased as gifts, usually, the simplest way to buy them is through the TreasuryDirect website.
6. Can I Buy Savings Bonds With Tax Refund?
Certainly yes! You can use all or part of your tax refund to purchase savings bonds. But your request for bonds must be in increments of $50. Any remaining refund amount not used to purchase bonds will be mailed to you as a paper check or you may elect to have the remaining amount directly deposited into a checking or savings account.
7. What Is The Interest Rate On Series I Savings Bonds?
The initial interest rate on new Series I savings bonds is 7.12 percent. You can get I bond at the rate of 7.12%.
8. When Should You Cash In Savings Bonds?
You can cash a savings bond within one year after it’s purchased, but it’s usually best to wait till five years at least, so you don’t lose the last three months of interest when you cash it in. For instance, if you redeem a bond after 24 months, you’ll only receive 21 months of interest.
9. Can You Use Series Ee Savings Bonds To Repay Student Loans?
Yes! If both parents keep the savings bonds safely tucked away for years, the child can use savings bonds for college or pay off student loans.
10. Can You Use Savings Bonds For Student Loans?
If the school is qualified for federal student loan programs like federal Stafford loans and federal Perkins loans, yes! You are eligible to cash in your savings bonds for education tax-free.
11. What Should You Do With Old Savings Bonds?
Once you discover that your savings bonds have matured, kindly cash them in and invest the money in something else. If you have paper bonds, contact your bank to see if it cashes savings bonds, because not all banks do, and some will cash in savings bonds only for customers who have had accounts for at least six months.
12. Are Banks Required To Cash Savings Bonds?
Yes! If you cash at a bank that provides the form. The bank may give you the form immediately or may mail it later. But possibly not until after the end of the year in which you cash the bond.
13. How Can Grandparents Invest For Grandchildren?
- Stocks. You can use UGMA or UTMA accounts to hold different types of assets
- Coverdell Education Savings Account
- Exchange-Traded Funds (ETFs)
- Traditional and Roth IRAs
- Savings Account
- Mutual Funds
14. How Long Do You Have To Claim Your U.S. Savings Bond From The Treasurer?
The treasurer’s suit only includes those bonds that have matured and been unclaimed- in the treasurer’s custody—for more than six years. However, any bond in the Treasurer’s possession—even if not part of the suit—can be claimed at any time.
15. When Do You Pay Taxes On Savings Bond Interest?
You can wait to pay the taxes when you cash in the bond, when the bond matures, or when they release the bond to another owner. Alternatively, you may pay the taxes yearly as interest accrues. On the other hand, most owners choose to defer the taxes until they redeem the bond.
16. Can You Still Buy A Savings Bond At A Bank?
No! You can no longer purchase paper Series I and EE savings bonds at banks and credit unions; you must buy electronic bonds through the treasury department’s web-based system- treasury-direct.
17. How Can You Begin The Process Of Getting Your Matured U.S. Savings Bond From The U.S. Treasury?
The following are the steps of getting your matured U.S saving bonds from the U.S treasury;
- Go to www.treasurydirect.gov, and log in to your TreasuryDirect account or open an account in your name
- Click on buydirect. On the purchase page, either select an existing registration from the drop-down list or create a new registration for the recipient by clicking “Add New Registration.”
- Have the recipient’s name and Social Security number on hand to register. Be sure to click the box “This is a gift.”
- Buy the type of savings bond you wish (Series EE or Series I), in a specific amount ($25-$10,000)
- Deliver the savings bond gift to the recipient’s TreasuryDirect account
- Print out a gift certificate to give to the recipient
18. Are Savings Bonds Worth It?
Of course yes! Savings bonds are considered one of the safest investments you can buy. The reason is that the value of a savings bond increases over time.
19. What Are Alternatives To U.S. Savings Bonds?
- Online banks and apps
- Peer-to-peer lending
- Cash management accounts
- Low-risk investments like treasury bills
20. When Does A Person Need A Custodial Account?
Usually, in some states, it’s when the person is up to the age of 18, but it may be as late as 25. But if you choose an age of termination greater than 21, there are important tax considerations that should be evaluated. Consult an attorney or tax advisor to discuss your options.
21. How Can You Gift Your Grandchildren Tax-Free?
- Make gifts to a custodial account that parents can establish for a minor child
- Transfer money into a trust established to benefit a grandchild
- Reduce your taxable estate while earmarking funds for the higher education of a grandchild through the use of a (529) account
22. Will I Get A 1099 For Cashing In Savings Bonds?
Yes! IRS Form 1099-INT is provided for cashed saving bonds.
23. How Do You Know Whether You Have A U.S. Savings Bond?
Kindly visit the treasury department’s TreasuryDirect website to search for uncashed savings bonds in your name. You can enter your social security number or Employee Identification Number (EIN) into the search field on the treasury hunt page and click the “Search” button to see results.
24. How Much Taxes Do You Pay When Cashing In Savings Bonds?
If you hold savings bonds and redeem them with interest earned, that interest is subject to federal income tax and federal gift taxes. So you won’t pay state or local income tax on interest earnings but you may pay state or inheritance taxes if those apply where you live.
25. Do You Have To Pay Taxes When Cashing In Savings Bonds?
Yes! Owners can pay taxes when they cash in the bond, when the bond matures, probably when they release the bond to another owner.
26. Can You Transfer Ownership Of Series Ee Bonds?
Yes! The owner can transfer a series of EE bonds to another person with a TreasuryDirect account. But you must wait five business days after the purchase date to transfer the bonds.
27. How Do You Avoid Taxes On Ee Savings Bonds?
The possible way to avoid owing taxes on the bond interest is to cash your EE or I bonds before maturity and use the proceeds to pay for college.
28. Can Us Savings Bonds Be Negotiated By A Minor?
No! Minors can’t negotiate or buy bonds, but their parents can do that for them.
29. Can You Avoid Paying Taxes On Savings Bond Interest?
Yes, you can avoid paying tax on the interest income you earn from your Series (I) savings bonds if you use them to pay for qualified educational expenses and meet the income limits. Qualified educational expenses include tuition and fees, such as required lab courses, to a university or college.
30. Which Type Of Bond Is Better, I Bonds Or Tips?
Tips are usually better in tax-advantaged accounts. Taxes on tips are due annually, making them less tax-friendly in taxable accounts than I Bonds, on which you can defer paying taxes until the bond reaches maturity or you redeem it. For these reasons, tips are considered a better option in a tax-deferred account.
31. Why Do Grandparents Love U.S. Savings Bonds So Much?
Because buying your grandchild a U.S. saving bond is considered a safe investment because it is guaranteed by the government of the United States. Savings bonds also are advantageous because you don’t have to pay local and state taxes on any interest earned.
32. Can A Grandparent Open A Roth Ira For A Grandchild?
Of course yes! A child of any age can own a Roth IRA as long as he earns income from a job. So a grandparent can provide the money for a grandchild to contribute to his account, but the amount can’t be more than what the child earns for the year. Nor can the funds a child puts into an IRA come from money invested in the child’s name.
33. What Is The Best Way To Invest For Grandchildren?
The following are the best ways to invest for grandchildren;
- The everyday option: A children’s saving account
- The investment option: Junior ISAs
- The long-term option: Junior pensions
- The lucky option: Premium bonds
- The tax-efficient option: Bare trusts
34. When Is The Best Time To Invest In A Savings Bond?
The best time to cash savings bonds is after holding them for at least five years. You cannot sell them until after you’ve held them for one year, and if you sell before five years, you’ll owe three months’ interest as a penalty.
35. How Long Does It Take For Series Ee Bonds To Mature?
It takes 20 years for series EE bonds to reach maturity, but some reach maturity sooner than that in most cases.
36. What Is The Final Maturity Of A 50 Savings Bond?
A 50 savings bond’s final maturity is about 30 years from the issue date.
37. How Do You Transfer Utama Mutual Funds Into A Roth Ira?
You can move money from a UTMA account to a Roth IRA by first selling your UTMA mutual fund, withdrawing the proceeds from the account, contributing it to the Roth account, and purchasing shares of a mutual fund.
38. What Are The Disadvantages Of Us Savings Bonds?
- Bond proceeds that are not used for the beneficiary’s qualified higher education expenses will be taxed to the owner
- Qualified education expenses for purposes of U.S. savings bonds generally include tuition and fees only, not room and board
- The maximum annual purchase allowed is $15,000 per individual for EE bonds ($30,000 face value) and $30,000 for I bonds (EE bonds are purchased at half their face value; I bonds are purchased at full face value)
- Your income must be below a certain level at the time you redeem (cash in) the bonds for you to be eligible to exclude the interest earned from federal income tax (yet you must add the bond proceeds into your total income for the year when determining whether you meet this income threshold)
39. How Much Is A 200 Savings Bond Worth After 30 Years?
A 200 savings bond would worth between $25 and $10,000 after 30 years.
40. What Is The Best Savings Account For A Grandchild?
- Junior Isas
- Bare Trusts
- Premium bonds
- Lifetime Isas
- Savings accounts
41. Is It Better For A Parent Or Grandparent To Own A 529 Plan?
Formally before some changes, it was typically better for parents to be the 529 account owners. However, with the upcoming FAFSA changes, grandparents will be slightly better off being the account owner due to their lower impact on financial aid.
42. Do Savings Bonds Double Every 7 Years?
Savings bonds can be doubled twice a year, all the interest that the bond earned in the previous six months is added to the main (principal) value of the bond. Interest in the next six months is then earned on the new value.
43. What Is The Best Savings Bond To Buy For A Child?
Security bonds are the most suitable for children because they are the only type of security kids can actually own.
44. Whose Name Do Social Security Benefits Come In If The Child Is A Minor?
If a child is a minor, their Social Security benefits will be issued in the name of the representative payee.
45. Why Should You Have Short And Long Term Savings Goals?
The reason is that they allow you to cover unexpected expenses, pay off debt, and fund life goals without unnecessary stress. Moreover, you never know when you’ll need your savings, so it’s important to start investing in both short-term and long-term savings accounts to be able to secure your financial future.
46. Will Savings Bonds Become Worthless?
No! The interest rate can’t go below zero and the redemption value of your bonds can’t decline.