How Do You Buy Savings Bonds as a Gift?

Buying savings bonds as a gift contributes to someone’s financial future. These government-backed securities provide a secure investment that accrues interest over time, serving as a thoughtful present for various occasions. The process involves the TreasuryDirect online system, the primary platform for purchasing electronic savings bonds. Understanding the preparatory steps, purchase procedure, and management of these gifts simplifies the experience.

Preparing to Gift Savings Bonds

Before purchasing a savings bond, gather several details. The two main types of savings bonds available for gifting are Series EE bonds and Series I bonds. Series EE bonds provide a fixed interest rate and are guaranteed to double in value after 20 years, while Series I bonds feature a variable interest rate that adjusts with inflation, offering protection against rising costs. Both bond types accumulate interest monthly, compounded semiannually, and mature after 30 years.

To purchase electronic savings bonds as a gift, the giver must have a TreasuryDirect account, the U.S. government’s online platform. The recipient of the gift must also have a TreasuryDirect account to receive the bond. For recipients under 18 years of age, a parent or legal guardian must establish a minor-linked account within their own TreasuryDirect account.

Gathering specific recipient information is necessary before purchase. This includes their full legal name, Social Security Number (SSN) or Taxpayer Identification Number (TIN), and their TreasuryDirect account number. This ensures the bond is correctly registered and transferred. The gifter will also need their own TreasuryDirect login credentials and banking information to fund the purchase.

Purchasing Savings Bonds as a Gift

Purchase occurs through the TreasuryDirect website. After logging into their account, the gifter will navigate to the “BuyDirect” section. Here, choose between Series EE and Series I bonds based on preference for fixed growth or inflation protection. Electronic savings bonds can be purchased in denominations ranging from $25 up to $10,000.

Enter the recipient’s previously gathered information. This includes their name and SSN, ensuring correct registration. Select the option indicating the purchase is a gift. The system prompts for the purchase amount and funding source, typically a linked bank account.

Upon purchase completion, the bond is initially held in the gifter’s “Gift Box” within their TreasuryDirect account. A mandatory five-business-day holding period is required before delivery. This period allows the transaction to process. After this period, the bond is ready for transfer.

After the Purchase: Gifting and Management

Once the five-business-day holding period concludes, the bond can be delivered from the gifter’s “Gift Box” to the recipient’s TreasuryDirect account. The gifter accesses the “Gift Box” section, selects the bond, and initiates delivery by entering the recipient’s TreasuryDirect account number. The recipient does not need to actively “accept” the bond; it transfers directly into their account once delivery is completed by the gifter.

Upon receipt, the bond becomes part of the recipient’s TreasuryDirect portfolio. The recipient, or their custodian if a minor, can access their account to view the bond’s current value, accrued interest, and maturity date. Savings bonds must be held for a minimum of 12 months before they can be redeemed. Cashing them in before five years results in a forfeiture of the last three months of interest earned.

There are annual limits on the purchase of savings bonds. An individual can purchase up to $10,000 in electronic Series EE bonds and $10,000 in electronic Series I bonds per calendar year. Gifts count towards the recipient’s annual purchase limit, not the giver’s. For example, if a bond is gifted, that amount reduces the recipient’s remaining purchase capacity for that year.

Regarding tax implications, gifting a savings bond does not create a tax event for the gifter. Interest earned on savings bonds is subject to federal income tax when the bond is redeemed or matures, but it is exempt from state and local income taxes. The recipient, as the bond owner, is responsible for reporting and paying the federal tax on the interest. They can defer reporting interest until the bond is redeemed or matures, or report it annually. An exception for federal tax on interest may apply if bond proceeds are used for qualified higher education expenses, subject to income limitations.