Are Savings Bonds Good Gifts?

Gifting savings bonds is like giving a gift of the future. The U.S. government has no problem with letting you give bonds as gifts, and its website is even set up to help you do so.

There are three types of savings bonds: electronic Series I bonds, electronic Series EE bonds and Series I bonds in old-fashioned paper form. Unfortunately, you can't buy paper bonds online.

You effectively loan the federal government money when you purchase U.S. savings bonds​.​ It sells electronic savings bonds at face value. You'll receive a $100 bond if you give the government $100, and you're guaranteed not to lose that money because bonds are backed by the "full faith and credit" of the U.S. government. You'll get your $100 back plus interest when the bond matures, and you're guaranteed to double your initial investment after ​20 years​.

Interest earned by the bonds is tax-free and you get a federal tax deduction if the money is used for education expenses. Series EE savings bonds pay a fixed interest rate while Series I bonds pay both fixed and variable rates.

​Consider also:​ Is Interest on Government Bonds Simple or Compounded?

You do have to abide by some rules in exchange for these benefits. First, there's a purchase limit: ​$10,000​ annually for electronic Series I and Series EE bonds​,​ and ​$5,000​ for paper bonds. But the limit applies to the recipient of your bond if you give it as a gift, not to you.

You can indicate on your tax return that you want to use your refund – or a portion of your tax refund – to purchase paper savings bonds.

You must set up an account with TreasuryDirect to buy electronic savings bonds, and the recipient of the bond must also have an account if you're giving it as a gift. You can set up the account for the recipient if you know their Social Security number or taxpayer ID number and their full legal name.

Go to "BuyDirect" when you access your account. Check the corresponding box for the type of bond you want to purchase and click on "submit." This will take you to a purchase page where you can enter the amount of the bond you wish to purchase. Click on the registration for the individual to whom you're giving it, then click on the "This is a gift" box. Pay for your purchase, and that's it.

Your account also comes with a "Gift Box" tab. Your bond will go there when you purchase it and there it will remain until you're ready to give it to the recipient. You can then simply direct the transmission of the bond from your account to theirs. You can even print out a gift certificate.

Don't wait until the last minute before purchasing a savings bond. It must remain in your own TreasuryDirect account for five business days before it can be officially transferred to someone else. This ensures that your electronic payment is honored by your bank or credit card lender.

Minors can't legally own bonds. The child's parent or legal guardian must set up a minor-linked account of their own to accept the bond on their behalf. The recipient of your gift must be age ​18 or older​ to hold their own TreasuryDirect account.

​Consider also:​ How to Cash a Savings Bond for a Minor

U.S. savings bonds are no longer sold at banks and financial institutions after Dec. 21, 2011. But you do have one other option if you want to purchase paper Series I savings bonds.

You can indicate on your tax return that you want to use your refund – or a portion of your tax refund – to purchase paper savings bonds. But expect to wait about three weeks for the paper bond to be delivered to you.