How Do I Buy a Savings Bond for a Baby?

Savings bonds are a thoughtful and enduring gift for children, offering a secure way to contribute to their financial future. These investments are debt securities issued by the U.S. Treasury, meaning they are backed by the full faith and credit of the U.S. government. They provide a low-risk option for long-term savings, making them a suitable choice for significant milestones like births, birthdays, or graduations. Gifting a savings bond helps establish a foundation for a child’s future financial well-being, potentially contributing to college expenses or other long-term goals.

Understanding Savings Bonds for Children

The U.S. Treasury offers two primary types of savings bonds: Series EE bonds and Series I bonds. Each type has distinct characteristics important for long-term savings strategies.

Series EE bonds provide a fixed interest rate. These bonds are guaranteed to double in value at the 20-year mark from their issue date. While they continue to earn interest for a total of 30 years, this doubling guarantee provides a predictable growth trajectory. They are purchased at face value.

Series I bonds, conversely, offer an interest rate that adjusts to account for inflation, combining a fixed rate with a variable rate. This variable rate is recalculated every six months based on inflation figures, providing protection against purchasing power erosion during inflationary periods. Like EE bonds, I bonds also continue to earn interest for up to 30 years. Both Series EE and Series I bonds have an annual purchase limit of $10,000 per Social Security Number (SSN) for electronic purchases in a calendar year.

Gathering Details Before You Buy

Purchasing a savings bond for a child requires careful preparation and specific information for both the purchaser and the recipient. The primary platform for purchasing electronic savings bonds is TreasuryDirect, the U.S. Treasury’s online system.

For the purchaser, establishing a TreasuryDirect account is the initial step. This process requires providing your full legal name, current address, Social Security Number or Taxpayer Identification Number, and bank account and routing numbers for funding purchases. You will also need to create a password, personalized image, and security questions for your account.

For the child, their full legal name, current address, and Social Security Number are essential. The bond will be registered in the child’s name, which is important because the annual purchase limit applies to the recipient’s SSN, not the giver’s.

When registering the bond, you have options for ownership structure within TreasuryDirect. The most common method for a minor is to set up a “Minor Linked Account” for the child under the purchaser’s primary account. This allows the adult to manage the bond until the child reaches legal age. Other options might include registering the bond with the child as the sole owner with a custodian or naming a beneficiary.

Purchasing the Savings Bond

Paper savings bonds are no longer sold by financial institutions or through payroll deductions, and as of January 1, 2025, the option to purchase paper Series I bonds with a tax refund has also been discontinued.

To purchase an electronic bond, log into your established TreasuryDirect account and navigate to the “BuyDirect” section. You will then select the desired bond type, either Series EE or Series I. Next, specify the recipient’s details, such as the child’s name and SSN, selecting the appropriate minor-linked account or registration option. You will then enter the purchase amount, which can be as little as $25 and up to the annual limit of $10,000 per series per SSN.

After entering the denomination, confirm the purchase details and select your linked bank account for payment. The funds are directly debited from your bank account, and the electronic bond is typically issued and held within the child’s linked TreasuryDirect account within one business day. You will receive confirmation of the purchase. If you are gifting a bond, it will be placed in a “gift box” in your account and can be delivered to the recipient’s TreasuryDirect account after five business days.

When the Child Needs the Bond

Once a savings bond is purchased, it begins accruing interest for the child. Both Series EE and Series I bonds continue to earn interest for up to 30 years from their issue date. It is generally advisable to hold the bond for its full term to maximize its earning potential.

Bonds can be redeemed after a minimum holding period of 12 months from the purchase date. However, if a bond is redeemed before five years, three months of interest will be forfeited as a penalty. After five years, bonds can be redeemed without this penalty.

When the child reaches legal age, typically 18, they can establish their own TreasuryDirect account and have the bonds transferred from the adult’s linked account to their individual account. If the child is still a minor, the adult managing the linked account can initiate redemption on their behalf. To redeem, log into TreasuryDirect, select the bond, and the funds will be deposited into the linked bank account, usually within a few business days.

The interest earned on savings bonds is subject to federal income tax. However, it is exempt from state and local income taxes. Tax on the interest can be deferred until the bond is redeemed or matures, whichever occurs first. At the time of redemption, the interest income will be reported to the IRS, typically on Form 1099-INT.