Here’s How to Gift Savings Bonds

Quick Answer

You can give the gift of savings bonds by buying them in two ways:

  1. Electronically for a recipient on TreasuryDirect.gov.
  2. Use your tax refund to buy a paper gift bond when you file your tax return.
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There are two ways to gift U.S. savings bonds: Buy them electronically for a recipient on TreasuryDirect.gov or use your tax refund to buy a paper gift bond, which you'll request when you file your tax return.

Savings bonds are a safe financial investment that accumulate interest for up to 30 years, and U.S. citizens of any age can receive a savings bond as a gift. Here's what you need to know about making a gift of savings bonds.

What Are Bonds?

A bond is a type of investment vehicle that acts as a loan from a borrower to an institution, such as a company or a government entity, which uses it to finance ongoing projects. When you buy a savings bond from the U.S. Department of the Treasury, you are lending the federal government money for a period of time in exchange for a return in the form of interest.

Bonds are typically safer than stocks, meaning they're more likely to earn you a predictable return over time. But that also means their returns may be lower. There are two types of federal savings bonds that you can give as a gift: Series EE bonds and Series I bonds.

Series EE Bonds

Series EE bonds are available in digital form only, and they mature (or grow in value) for up to 30 years. The recipient of the bond can cash them out anytime after one year, but they won't earn the maximum return. If they redeem the bond within five years, they won't receive the interest earned in the prior three months.

The interest rate on a Series EE bond is currently 0.10%, which gets added to the bond's value each month. The U.S. Treasury guarantees a Series EE bond's value will double after 20 years.

Series I Bonds

Series I bonds also have a maturity of 30 years and come with an early redemption penalty if they're cashed in before five years. Unlike Series EE bonds, Series I bonds can be purchased either electronically or in traditional paper format (using your tax refund).

These bonds currently have an interest rate of 7.12%, which comes from two sources: a fixed interest rate and a variable rate based on inflation. Interest is added monthly.

Series I bonds are not guaranteed to increase in value as Series EE bonds are. But they can be a good investment to prevent reduction in your money's value due to inflation.

How to Buy Savings Bonds as a Gift

The easiest way to buy savings bonds as a gift is to order them at TreasuryDirect.gov, the official source of savings bonds from the U.S. Treasury. Both you and the recipient must set up a TreasuryDirect account online. If the recipient is under 18 years old, their parent or guardian must set up a minor linked account on their behalf.

Once you've each created an account, you can enter the recipient's name, Social Security number and TreasuryDirect account number to send the bond. When a minor recipient reaches age 18, they can set up their own account and their parent or guardian can transfer the savings bond directly to them.

Series EE bonds and electronic Series I bonds can be gifted in any amount from $25 to $10,000 per calendar year. Paper Series I bonds can be gifted in amounts from $50 to $5,000 per calendar year, in increments of $50, $100, $200, $500 and $1,000.

If you'd like to give a paper Series I bond, you'll fill out IRS Form 8888 and submit it with your tax return. You can request to use all or part of your expected tax refund to buy a savings bond in the recipient's name. You do not have to create a TreasuryDirect account, and you'll receive the savings bond in the mail at the address the IRS has on file for you.

Benefits of Gifting Bonds

The biggest advantages of gifting savings bonds are the safety of the investment and the fact that their value will likely grow. In fact, in the case of Series EE bonds, the value is guaranteed to double in 20 years.

Series I bonds, on the other hand, don't guarantee a particular return. But they do come with a comparatively high interest rate of 7.12% through April 2022. That makes them a better choice than other low-risk investments like a certificate of deposit, for example, which currently have comparatively low interest rates.

Plus, the Series I bond's interest rate is tied to the inflation rate and updated every six months. That means this type of savings bond also gives the recipient an investment protected from high inflation, which would otherwise inhibit the bond's value.

The type of bond you give might depend on how you think your recipient will manage it. While Series EE bonds come with an enticing guarantee, if you think your recipient might want to cash out before the maturity date, a Series I bond will likely offer a better return.

How Gifting Bonds Affects Your Taxes

Interest earned on savings bonds is subject to federal income tax, but not to state or local income tax.

Only the person named on the bond as the recipient is required to pay tax on savings bond interest received. They can choose to pay the interest annually or defer payment and report the interest on their tax return the year they cash out the bond.

In the case of a savings bond purchased for a child, there may be tax benefits to reporting interest annually while the child's income is low or nonexistent. It's also possible to avoid paying federal income tax on savings bond interest if the bonds are used to pay for eligible higher education expenses.

The Bottom Line

Gifting savings bonds is a tried-and-true method of helping someone you care about save for the future. The return on bonds may not be extravagant, but they're a safe investment vehicle: When inflation is rising, Series I bonds can be a particularly strong investment, and Series EE bonds are a guaranteed way to double the value of the recipient's gift.

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