One of the best parts of being a grandparent is doing thoughtful things for your grandchildren. In addition to spoiling them with the latest gadgets, fun vacations, or simple trips out for ice cream, you also want to give them gifts for their future.
This is why savings bonds have been a popular choice with grandparents for decades. However, a lot has changed in the world of savings bonds in the last five years.
For one, the government has given them a digital makeover. This can make the process of giving them as a gift a bit more complicated. In addition, some people have dismissed bonds because of their less-than-stellar rates.
So are bonds a dependable, low-risk investment option or a relic from a bygone financial era?
Take some time to look at bonds with fresh eyes to see if they still matter in the modern financial landscape. Of course, the first step to giving a savings bond may be explaining to your grandchildren what this iconic staple of the American economy actually is.
A Look at Savings Bonds
Grandparents have been giving their grandchildren bonds for holidays, birthdays, and milestones for decades. However, a savings bond today isn’t the easy gift it once was.
Getting your hands on a bond used to be as easy as showing up at your local bank and requesting one. A change made in 2012 saw the end of bonds being given out at banks. You can now only purchase bonds digitally.
Here’s a look at all of the information you’ll need to have to set up your account online:
- Email address
- Social Security number
- Bank account information
- Bank routing number
- Driver’s license number
What do you need to do once you have all of the proper information in your hands? Here are the steps you will need to take to gift a bond to a grandchild in 2017.
- Create a TreasuryDirect account. You’ll need to create your own account first.
- BuyDirect. Through your account, you can click BuyDirect to choose the types of savings bonds you want to buy.
- Register to your grandchild. If your grandchild isn’t already registered at TreasuryDirect, you’ll need to do this. You’ll 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 enter a purchase amount from $25 to $10,000.
- Pay for the bond. You can fund your bond through your checking account or other means in your TreasuryDirect account.
- Submit the order. After you check all the details, you can 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.
These are the steps that you must take. But 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.
You can find the complete step-by-step instructions from TreasuryDirect here.
Do Savings Bonds Still Have Value?
Clearly, the way people open savings bonds has changed. But has the value of these bonds shifted, as well?
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 most recent rates when making your decision.
Whether or not a bond is a good option for a gift will depend on the age of your grandchildren right now and when you anticipate they will want to cash out their bonds.
A Series EE savings bond is a decent choice if you anticipate your grandchild will hold the gift for a full 20 years. A Series EE savings bond is required by law to double in value over a period of 20 years.
However, this is not the case if the owner cashes out the bond before 20 years. In this case, the bond will deliver the rate posted when the bond was purchased.
You could also go with Series I savings bonds if you think your grandchildren may want to cash out their bonds before 20 years go by. 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.
The big perk of giving savings bonds is that you can take a very hands-off approach once you’ve given your gift. They don’t require any additional management to ensure they’ll continue to earn interest.
The Limits of Savings Bonds
A savings bond remains a decent choice if you’re giving 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.
What if you want to give more money than this? You’ll want to work with a financial advisor to set up a trust fund or alternative arrangement. You’ll exceed the legal cap for bonds. Plus, you might find other options with better earning potential for such a large gift.
Giving Savings Bonds to Your Grandchildren Still Makes Sense
Bonds remain a safe and solid option if you’re looking for a way to give your grandchildren small financial gifts that have the potential for a little bit of growth. They’re also great if you want to help your grandchildren save. Kids are likely to spend cash right away. With a savings bond, there’s a better chance they will hold onto it.
While rates for bonds are pretty low, they’re still a better option than many gifts. Giving bonds when grandchildren are still celebrating single-digit birthdays is really the best option because your gifts will have time to grow in value. Then, they’ll be available when they can really be appreciated.