Savings bonds are regarded as simple, safe investments that generate interest over time. The fact that youngsters may retain them in their names is a further benefit, making them wonderful presents for children. Buying a savings bond for a child, whether you’re a parent, relative, or family friend, can help them later on in life receive a big payout. It’s also an easy chance to inform them of the advantages of investing.
Here is a brief but comprehensive explanation of how to buy kids’ savings bonds.
The Function of Savings Bonds
Federal insurance is provided for savings bonds issued by the U.S. Treasury. They might cost as little as $25 or as much as $10,000 to buy. By purchasing a savings bond, you are essentially lending the government money that will be repaid at a later time. Interest might build up for up to 30 years in the interim. Although a savings bond can technically be redeemed after one year of purchase, you must wait at least five years to do so in order to obtain the full amount of interest that has accumulated.
The idea when giving a savings bond as a gift is for the receiver to hold off on redeeming it until the bond has reached full maturity. According to the U.S. Department of the Treasury, about 80 million savings bonds with a total face value of $29 billion were still outstanding as of April 2021.
The two types of savings bonds are as follows:
- Bonds from the Series EE category are obtainable digitally and have a set interest rate that accrues monthly. After 20 years, their worth will at least double. Through April 2022, holders of Series EE bonds will get a yield of 0.10%.
- Series I bonds: Although you can use an IRS tax refund to buy a paper Series I bond, these are also available electronically. Because they combine two separate interest rates—a fixed rate that stays the same and a changing rate that rises and falls in line with the rate of inflation—they differ from Series EE bonds in this way. For a Series I bond purchased through April 2022, the composite rate is 7.12%. Every six months, a portion of this rate is adjusted for inflation.
Be aware that there are buying restrictions. You may purchase up to $10,000 in electronic Series I bonds, $5,000 in physical Series I bonds, and $10,000 in Series EE bonds in a given calendar year. It’s also important to note that any savings bonds bought as presents are not included in these figures.
How to Sell a Bond in Savings
To start with, you should figure out how much the bond is worth. For paper bonds, which can be redeemed at most financial institutions, you can use this savings bond calculator. Simply remember to bring identification. You can check the value of your electronic savings bonds and redeem them (if you’re ready) by logging onto your TreasuryDirect account. Within a few business days after redemption, the cash value will be placed into your bank or savings account.
When redeeming a savings bond for a child, there are a few extra actions to be taken. If the bond is written on paper, the parent must sign their name and the child’s name on the back. Additionally, they must confirm in writing that they are the child’s legal guardian. (The Treasury specifies the terminology that guardians must use.)
Alternatively, they can complete this form and send it straight to the Treasury, which may call for a certified signature. Parents who purchase electronic savings bonds for their children may open a TreasuryDirect account for the child, link it to their own account, and then redeem the bonds as they see fit.
Purchase of a Savings Bond for a Child
Savings bonds are simple to purchase online at TreasuryDirect.gov. You can have them registered in your name or the name of the child you are buying them for. Be ready to supply the child’s full name and Social Security number if the savings bond is a gift. Additionally, the beneficiary needs a TreasuryDirect account of their own. In that case, you can choose to keep the gift in your account until one is set up for them. Gift bonds can be bought for anywhere from $25 and $10,000.
Savings bonds can be appropriate entry-level investments for kids, even if returns are often less robust than with higher-risk securities like equities. The more financially stable you are, the better equipped you are to investigate these possibilities. A vital component of financial wellness is having good credit; you can check your credit score and report for free at Experian to see where you stand.