How to Buy Savings Bonds for a Child

Savings bonds are a traditional and secure way to invest in a child’s financial future. These low-risk investment products are backed by the U.S. Treasury, offering a reliable path for growth. Gifting a savings bond can provide a foundation for future financial needs, such as higher education or a down payment on a home. The process of acquiring these bonds for a child involves understanding the available options, gathering necessary information, and navigating the online purchase system.

Understanding Savings Bond Options for Children

Two primary types of savings bonds are available: Series EE bonds and Series I bonds. Both can be purchased in amounts ranging from $25 up to an annual limit of $10,000 per Social Security Number per calendar year for electronic bonds.

Series EE bonds provide a fixed interest rate set at the time of purchase and are guaranteed to at least double in value if held for 20 years. These bonds continue to earn interest for up to 30 years. While the initial interest rate might be low, the doubling guarantee after two decades provides a predictable growth trajectory.

Series I bonds feature a composite interest rate, which includes a fixed rate and a variable rate adjusted every six months based on inflation. This structure helps protect the investment’s purchasing power against rising costs. Like EE bonds, Series I bonds also earn interest for 30 years. Both bond types accrue interest monthly, compounding semiannually.

Gathering Information and Making Decisions for Purchase

Purchasing a savings bond for a child requires specific information and decisions. The purchaser needs a TreasuryDirect account, which serves as the platform for all electronic bond transactions.

For the child recipient, full legal name, Social Security Number (SSN) or Taxpayer Identification Number (TIN), and date of birth are required. The child also needs a minor-linked TreasuryDirect account, which a parent or guardian must establish and manage. If the child does not have an account, bonds can be held in the purchaser’s “Gift Box” within TreasuryDirect until the child’s account is set up.

Deciding on the bond’s registration is an important step, as it determines ownership and control. One common option is “registrant with beneficiary,” where the purchaser is the primary owner and the child is named as the beneficiary. Upon the owner’s death, the bond transfers to the beneficiary. Another option is “registrant with co-owner,” where the purchaser and the child share ownership. For educational tax benefits, the bond must be in an adult’s name, not the child’s, if the interest is to be excluded from federal taxes for qualified higher education expenses.

The Purchase Process Through TreasuryDirect

The purchase of savings bonds occurs through the TreasuryDirect website. This online platform is the sole method for buying electronic Series EE bonds and the primary method for electronic Series I bonds. Paper Series I bonds can still be obtained using a tax refund.

The purchaser must log into their TreasuryDirect account. From the main account page, navigate to the “BuyDirect” section. Here, select the desired bond type, either Series EE or Series I, and then input the purchase amount.

Next, the system will prompt for the recipient’s information. This includes the child’s full name, Social Security Number, and their TreasuryDirect account number if the bond is being directly delivered. The chosen registration type, whether as a gift to a minor-linked account or another arrangement, is also selected at this stage. Finally, the purchaser confirms the transaction details and selects their funding source, typically a linked bank account. After a purchase, gifted bonds must remain in the purchaser’s Gift Box for at least five business days before they can be delivered to the recipient’s account.

Managing and Redeeming Savings Bonds

Once a savings bond is purchased, it is held electronically within the TreasuryDirect system. The bond’s value and accrued interest can be tracked by logging into the TreasuryDirect account under the “current holdings” tab.

Savings bonds can be redeemed after a minimum holding period of 12 months. However, if a bond is redeemed before five years from its issue date, the last three months of interest are forfeited as a penalty. To initiate a redemption, the registered owner, or a parent/guardian acting on behalf of a minor, accesses the TreasuryDirect account and follows the instructions for cashing the bond. The funds are then transferred via direct deposit to a linked bank account within a few business days.

Interest earned on savings bonds is subject to federal income tax, but it is exempt from state and local income taxes. Bondholders have the option to defer reporting the interest for tax purposes until the bond matures or is redeemed. If the bond proceeds are used for qualified higher education expenses, the interest may be excluded from federal income tax, subject to certain income limitations. This education tax exclusion applies if the bond is owned by an adult, not directly by the child.