Questions about buying savings bonds for gifts

[DMRick]

We give bonds. If they aren't happy with them, then I'd be happy to send a card instead
I have to admit, if I ever heard of one of them complaining, it would be just a card. I like the incentive for them to hold onto them, versus cash they would blow immediately. I want to give them something for themselves, not something parents can use.

 

[nbodyhome]

We give bonds. If they aren't happy with them, then I'd be happy to send a card instead
I have to admit, if I ever heard of one of them complaining, it would be just a card. I like the incentive for them to hold onto them, versus cash they would blow immediately. I want to give them something for themselves, not something parents can use.

Well said, Rick! I would feel the same way when we (very likely) will give bonds. When my nieces have gotten money in the past, I know their mom has bought stuff for them, or taken them places with it. To me, a bond is about the childs future, something they can use towards college or a car, etc. - and not about immediate gratification or for what the parents want.

Denise

 

[nbodyhome]

I just cashed in a $50.00 savings bond from 1993 and it was worth $42.27. Found it in my bottom drawer and had forgot all about it!! Put the money in our savings account for our Disney trip in December. I agree if possible put it in a savings account instead.
Lory

You probably still got 3 percent or more on it, most savings accounts don't get that.

I think bonds are wonderful - or if a child has a college fund (I think Florida has a prepaid tuition plan, which would be something good for putting money towards).

Seeing my nieces at Christmas - there is just a time when too much is too much. I do get them mostly clothes (often Disney from the outlets), which they like. I rarely get them any toys. My niece and nephew in DC have plenty of toys and such too, so clothes for them as well. They wouldn't need savings bonds as much, I am sure my stepbrother and his wife are doing just fine with their future education money (they are very disciplined).

Denise

 

[tiffany123]

I worked at a company for over 9 years which strongly encouraged the purchase of US Savings Bonds. I purchased 4 per month during that time at $50 per bond. I have yet to cash them in and I hope to hold all of them until they mature completely at 30 years. A small $50 bond that I was given 29 years ago will be worth more than $270 next Dec when it matures. At present there are no federal taxes on US Savings Bond redemptions. We and my parents give bonds to the grandkids/greatgrandkids). They'll be up at at least face value by the time the kids are in college and worth even more by the time they are ready to marry and buy a home. Not great interest rates but no risk and no federal taxes at redemption are pluses.

 

[minechuchie]

If anyone is interested this is what I found out ...
I BOND EARNINGS RATE 6.73%

The earnings rate for Series I Savings Bonds is a combination of a fixed rate, which will apply for the life of the bond, and the inflation rate. The 6.73 percent earnings rate for I bonds bought from November 2005 through April 2006 will apply for the first six months after their issue. The earnings rate combines the 1.00 percent fixed rate of return with the 5.70 percent annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U). The CPI-U increased from 193.3 to 198.8 from March to September 2005, a six-month increase of 2.85 percent.

Treasury’s inflation-indexed I bonds are designed to offer all Americans a way to save that protects the purchasing power of their investment by assuring them a real rate of return above inflation. I bonds have features that make them attractive to many investors. They are sold in electronic form in amounts of $25 and above, or in paper form at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000, and earn interest for as long as 30 years. I bond earnings are added every month and interest is compounded semiannually. They are state and local income tax exempt, and Federal income tax on I bond earnings can be deferred until the bonds are cashed or they stop earning interest after 30 years. Investors cashing I bonds before five years are subject to a 3-month earnings penalty.

I found this info on Treasurydirect.com they have lots of good info. Also if you would decide on a series EE bond and intend to have it used for schooling there is a special way to fill them out so you are not taxed when they are cashed in... ask at your local bank someone there can help more.

Hope this helps some...still learning myself. Terri

 

[OceanAnnie]

This is an interesting thread!

I've thought of buying savings bonds for gifts as well. I always thought they matured after 7 years. I don't know why I thought 7 was the magic number. How many years does it take for them to mature?

I learned some new things on this thread. I hadn't considered the I bond before, but I will now. I always thought they were good gifts. I wouldn't look at them as a primary source of savings, but a good back up savings resource. Just me.

 

[mrsbornkuntry]

It looks like I bonds would be better if they're phasing out the EE bonds, but I was under the impression that you can't buy I bonds for gifts, is that wrong?

 

[nbodyhome]

It looks like I bonds would be better if they're phasing out the EE bonds, but I was under the impression that you can't buy I bonds for gifts, is that wrong?

I've received a bond as a gift, and know others who have.

Denise

 

[WeLoveThePoly]

This is an interesting thread!

I've thought of buying savings bonds for gifts as well. I always thought they matured after 7 years. I don't know why I thought 7 was the magic number. How many years does it take for them to mature?

I learned some new things on this thread. I hadn't considered the I bond before, but I will now. I always thought they were good gifts. I wouldn't look at them as a primary source of savings, but a good back up savings resource. Just me.

I thought the same thing. Maybe because I once heard that it usually takes 7 years to double your money and since you buy a bond at half the face value I just assumed it matured in 7 years.


My DH's aunt (who has since passed away) gave our DD four Series EE savings bonds as gifts. Thank you summerrluvv for posting that website to check bond values. I checked DD's bonds:

$100-Issued 10/97-Matures 10/27-Current Value $70.92 (1)
$50-Issued 12/97-Matures 12/27-Current Value $34.84 (1)
$75-Issued 08/98-Matures 08/28-Current Value $50.58 (2)
$75-Issued 12/98-Matures 12/28-Current Value $49.56 (3)

(1) It appears my DH's aunt's SSN is on this bond
(2) My SSN is on this bond
(3) DD's SSN is on this bond

What happens when DD tries to cash in the bonds with SSNs that are not hers? Her name is on the bonds.

Thanks,
Debbie

 

[bigolive9]

i work for a bank, and I have been told that EE bonds reach face value at about 18 years. They will continue to mature (earn interest) for a total of 30 years. Also, as of 2 years ago, you have to keep a bond for 1 year before cashing it in. I bonds are purchased at face value, and are also subject to the 1 year waiting period to cash in.
Another thing the OP may want to look into are 529 plans. They are set up in the childs name for college purposes. They are nice because any family member can deposit into the account, but the money can only be withdrawn at college age. I am not to sure about all the requirements and benefits, but it might be worth going to her local bank and talking with a banker.

 

[stacieps]

I'm not sure if you are aware that the Parents can cash in a Savings Bond that is in a minor child's name. So, if you're thinking of sending the Bonds to the child as a gift, there is no guarantee that the parents won't take the money for themselves. My in-laws bought my children each a couple of small EE savings bonds ($50) a few years ago, after checking the interest rates, maturity, etc., I found that this wasn't a good investment, I cashed in the bonds and put the money into an ING account that was earning better interest, and now have it (along with other $$) in CDs for the kids. Not what the in-laws had in mind, but I figure it best to make the most of what the kids have and didn't want to just leave it earning smaller interest than it could.

So, just know that if you send a bond, the parents can do what they want with it, just as cash or a gift card. If you don't trust the parents, you might want to buy the bonds and hold onto them until the child is old enough to have them.

 

[mrsbornkuntry]

So, just know that if you send a bond, the parents can do what they want with it, just as cash or a gift card. If you don't trust the parents, you might want to buy the bonds and hold onto them until the child is old enough to have them.

Oh, that's just what I was trying to avoid. I don't trust the parents at all and I know that if I don't do something for my nephews future no one will, but I don't want the boys to think that I've stopped buying them gifts.

 

[sandy6879]

Just as a side note - if you are doing this so the parents cannot access the money, it's not going to work out that well. I have been a branch manager for a bank for 8 years -all the parents need to do is come in, sign the bond as "parent" and they can legally cash it. Just an FYI. If you're looking to do something STRICTLY in a child's name, consider a savings account with yourself as the custodian, a 529 plan, or any mutual funds again with yourself as the custodian. You will need their socials for these as well.

 

[sandy6879]

As for taxes, as long as you are listed as custodian, all interest will be reported under the child's social security number. Forgot to add that in....also, to be totally honest, bonds are a waste, esp. EE bonds. You're much better off investing in the market. I know that can be scary to hear, but the rate of return over an extended period of time (5 years or more) has historically been a better return.

 

[NeverlandClub23]

Fiancial guru Clark Howard has been recommending that folks not buy EE bonds any longer....here's a blurb from a show I heard recently...when he says May...he means May of 2005.

"Clark has encouraged people for years to put money into U.S. savings bonds. For years, there was one kind of bond to buy – Series EE bonds. And then came the Series I bonds, which are “inflation adjusted” savings bonds. These pay you a guaranteed rate of interest, plus whatever the rate of inflation is. The EE bonds have been offering people a decent deal with a current rate of 3.25 percent. The I bonds are paying 3.67 percent. But things are about to change. With the next reset in May, traditional savings bonds are no longer going to earn “market interest rates.” Any EE bonds bought before the end of April will still qualify under the old system for up to 30 years. Those bought after that will earn under the new inferior system. The rationale is that the U.S. Treasury wants to offer more money to people who already have money and less money to those without it. So, the EE bonds are slowly going away. So, starting in May, you want to purchase I bonds only, not EE bonds. You human resources will be able to help you if you buy through work. The I bond rate changes every 6 months, and Clark will let you know soon whether they are a good idea to buy."

I've worked at a financial institution for several years and I've always bought I bonds. They do earn a better interest rate and I think EE bonds fool a lot of people who receive them (and don't know anything about bonds) that a $50 EE bond redeemed after a year will not get them $50. Bonds are a nice gift but I have helped many customers who bring in 40-70 bonds at once and it takes awhile to redeem that many bonds at every bank or credit union I have worked at, making them inconvenient for people who don't have a lot of time to waste at their bank. Also, bonds are taking longer and longer to reach face value. Back in the late 80's bonds reached face value before 10 years, now it takes almost 20 (18 or 19 I think) to reach face value. You can also think about opening a savings accounts for the kids with an online bank, such as ING or Emigrantdirect for the same interest rate as the bonds. The only difference being with bonds you don't have to pay federal taxes on the interest until you redeem them.

 

[DMRick]

However, when given as a gift, it's really up to the gift giver to decide the type of gift. There are lots of gifts that may be a "waste". I really don't want to get into deciding how to invest a simple gift, and for me bonds are the easiest way to give a gift to a child if I have no other ideas of what to give. They get to actually hold something and know they weren't forgotten. Even if they are only worth the original $50 ten years later..it's still a gift

Forgot to add that in....also, to be totally honest, bonds are a waste, esp. EE bonds. You're much better off investing in the market. I know that can be scary to hear, but the rate of return over an extended period of time (5 years or more) has historically been a better return.

 

[sandy6879]

I agree, if it's for the purpose of a gift, it's fine. But if it is for the purpose of being able to have some money when a child is older, the I bonds are far better than the EE and other investment vehicles are even better. It really depends on what the purpose of the funds is for.

 

[DMRick]

For me, they are gifts for the purpose of the child to have some money when they are older. But again, I want it to be something the child can put their hands on, and the bonds, in our family seem to be well liked..and if they come to a point when they aren't..back to just a card

I agree, if it's for the purpose of a gift, it's fine. But if it is for the purpose of being able to have some money when a child is older, the I bonds are far better than the EE and other investment vehicles are even better. It really depends on what the purpose of the funds is for.

 

[summerrluvv]

For me, they are gifts for the purpose of the child to have some money when they are older. But again, I want it to be something the child can put their hands on, and the bonds, in our family seem to be well liked..and if they come to a point when they aren't..back to just a card

I would LOVE it if my family bought my son bonds for bdays and christmas! He has a few from when he was younger. Toys are fun, but the novelty wears off and he usually has a ton of things from Santa. Maybe next year when they ask what he wants, I'll suggest the bonds.

 

[luvsgrumpy]

I just wanted to add my 2 cents. I worked at our local bank for 9+ years (before DD5 was born) and parents were able to and did cash in their kids bonds on occasion. So, if you are buying them so the parents cannot do that, I too recommend giving them the gift certificate that is available when the bond is purchased and having them mailed directly to you and storing them for the kids. Imagine their surprise in getting them when they are older if they had been forgotten. I still keep hoping some will pop up for me (although I think by this age I'm out of luck!) Most parents only have their kids best interests in mind when cashing them in but you never know what might happen.

Also, when you are worried about it taking so long to maturity, keep in mind that it is only the original investment that is earning the interest ie. $25 for a $50 bond. I understand that other types of accounts/investments might have higher rates but I think keeping this in mind makes it easier to deal with.

My kids do receive bonds for b-days and x-mas. I love it! and I am sure they will appreciate it much more once they are closer to college age. I plan to put almost all towards college. The rule used to be that the kids could not be the owner or co-owner for tax benefits. Anyone know if that is still the rule for using them interest free for college? Most come in my name and SSN with them as beneficiary.

Great subject, thanks!