What to Do With a Savings Bond Gift Certificate

A savings bond gift certificate is a non-negotiable voucher that allows the recipient to acquire a U.S. savings bond. It represents the giver’s commitment to purchase a bond, either electronic or paper, in the recipient’s name. The certificate itself holds no cash value but facilitates the purchase of an interest-earning security.

Preparing for Redemption

Before redeeming a savings bond gift certificate, the recipient needs to gather personal and financial details. This includes their Social Security Number, full legal name, and current address. For electronic bond purchases, bank routing and account numbers are also necessary.

Recipients can transform a gift certificate into a savings bond in two ways. The most common method is purchasing an electronic bond through TreasuryDirect, the official U.S. Treasury website. Some gift certificates might permit conversion to a physical paper bond, though this option is less prevalent.

To acquire an electronic bond, setting up a TreasuryDirect account is the first step if one is not already established. This process requires providing personal identifiers, banking information for linked accounts, and an active email address. The gift certificate’s value will then be applied towards the purchase of an electronic savings bond within this account.

When choosing an electronic bond, the recipient may select between Series EE and Series I bonds. Series EE bonds offer a fixed interest rate, guaranteed to double in value over 20 years. Series I bonds feature a variable interest rate that adjusts with inflation, providing protection against rising costs.

Navigating the Redemption Process

Once all necessary information is assembled, the redemption process can begin. For electronic bonds, the process occurs within the TreasuryDirect online platform. After logging into their account, the user navigates to the “BuyDirect” section.

Within “BuyDirect,” the recipient selects the bond type (Series EE or Series I) and enters the unique gift certificate number. The system prompts for purchase confirmation, using linked banking information. An email confirmation is sent once the purchase is complete, and the bond appears in their account after a short processing period.

For instances where a paper bond redemption is permissible, the recipient presents the gift certificate at a financial institution that processes savings bonds. Contacting the bank beforehand is advisable. At the institution, the recipient provides identification and completes any required forms, including personal and banking details.

The bank’s representative verifies the certificate and identity, then processes the transaction. The bond may be issued electronically or, in specific cases, a paper bond might be mailed. The financial institution provides a receipt.

Tax Considerations for Savings Bonds

Interest earned on savings bonds accrues over time and is subject to federal income tax. Bondholders can report this interest annually or defer reporting it until the bond matures, is redeemed, or changes ownership. Most individuals defer reporting, paying federal taxes when the bond is cashed.

Savings bonds are exempt from state and local income taxes; interest is only taxed at the federal level. The U.S. Treasury or the redeeming financial institution issues Form 1099-INT to the bondholder when interest payments are made or when the bond is redeemed. This form details the interest earned for tax reporting.

Interest may be excluded from federal income tax if bond proceeds are used for qualified higher education expenses, such as tuition and fees at an eligible educational institution. To qualify, the bond must have been issued to an individual at least 24 years old at issuance.

This education exclusion is subject to annually adjusted income limitations. If the taxpayer’s modified adjusted gross income exceeds certain thresholds, the exclusion may be reduced or phased out. Consult current IRS guidelines or a tax professional to determine eligibility.

Special Scenarios and Troubleshooting

If a savings bond gift certificate is lost or stolen, the recipient should contact TreasuryDirect support. They will need to provide information to verify ownership, such as name, Social Security Number, and certificate details, to facilitate replacement or redemption. Maintaining a record of the certificate’s details is advisable.

When the recipient is a minor, a parent or legal guardian manages the redemption process. The parent or guardian must establish a primary TreasuryDirect account and create a linked account for the minor. This linked account enables the purchase and holding of the electronic bond in the minor’s name under adult oversight.

If the intended recipient is deceased, the redemption process falls to the executor or beneficiary of their estate. Required documentation includes a certified copy of the death certificate and proof of the executor’s authority, such as letters testamentary or letters of administration. For electronic bonds, contact TreasuryDirect; paper bonds may need to be mailed to the Treasury Retail Securities Site with appropriate forms.

If the total value of Treasury securities in the estate is less than a certain amount, a voluntary representative may process the redemption without full court administration. Savings bond gift certificates do not have an expiration date, meaning they should still be honored for bond purchase even if significant time has passed since issuance.