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.