Savings Bonds as gifts for grandchildren and others

Tuesday, September 14th, 2004
Categorized as: Savings Bonds as gifts and prizes

I am a grandmother interested in buying savings bonds for my grandchildren. I am clueless and am wondering if this would be a better way for me to save. Right now I have a savings account at my bank for them, but it does not draw a lot of interest.

Tom’s response

Paper Series EE Savings Bonds are often used as gifts. A hidden reason for their popularity is that Series EE bonds are purchased at half of face value. So you can give a Savings Bond that has $100 printed on it, even though its cost to you and its true value is only $50.

Series I bonds and both Series I and EE electronic bonds at TreasuryDirect are sold at full face value and are used much less frequently as gifts. But if making an electronic gift interests you, see my post on Savings Bond gifts in TreasuryDirect.

In most states you can purchase gift Savings Bonds at most banks and other financial institutions. When you purchase the bond, you can make anyone the owner. The recipient of a gift bond can live virtually anywhere in the world.

When you purchase the gift bond, you do have to provide a Social Security Number, but it can be either yours or the recipient’s. The Social Security Number you provide isn’t used for tax purposes; instead, it’s used primarily to track the bond in case it’s lost. (Government agencies providing benefits that require the recipent to have limited assets also routinely do a Savings Bond SSN check.)

Because of its lost-bond tracking function, it’s best to provide the gift recipient’s Social Security Number. No one ever thinks to look for their lost bond under grandma’s SSN.

It’s important to understand that when you buy a gift bond, the bank doesn’t hand it to you on the spot. The bond will be mailed out by the Treasury and typically takes about three weeks to arrive.

You will also have to provide the mailing address that you’d like the Savings Bond sent to. You can provide your own address or you can have it mailed to the recipient.

If you have it mailed to the recipient, make sure you remember to tell the recipient who the gift came from. When the Savings Bond arrives, there’s no way for the recipient to tell who purchased it

People ask me all the time how to trace the giver of a gift bond, but it can’t be done. So you’re not going to get a Thank You note from Jennifer unless you tell someone about the gift.

Alternatively, you can have the gift Savings Bond mailed to your own address. When you do this, your name and address will be printed in the mail to area on the bond. Jeremy can remember you when he cashes it! And you can present it to Jeremy in person.

Because of the three-week wait for the bond, which givers sometimes forget to plan for, the Treasury provides banks with certificates that announce the gift, but banks don’t always have them at hand. Click here for my post about downloadable Savings Bond gift certificates.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:


On February 24th, 2008 Mary Ann said:

Can I gift a savings bond I already have in my name to my child?

On February 25th, 2008 Tom Adams said:

Hi Mary Ann – You can, but I don’t recommend it. The reason is too complicated to explain here, but if you have my book it’s in the section about the double-taxation trap.

Cash the bonds you have, hold the back the money you need for taxes, and buy your child new Series I Savings Bonds with the money that’s left.

Tom Adams

On February 25th, 2008 Mike said:

Hi I was given a U.S. savings bond in 1988 by my aunt, she lives in Boston and I live in Ontario, Canada. With the bond she gave me a note saying that she gives me permission to cash the bond that is in her name. The note has her signiture and SSN# on it. Is it possible to cash it here in Canada? and where do I go to do so???

On February 25th, 2008 Anthony said:

I was told that my grandmother bought me several savings bonds when I was a child in the mid to late 80’s. I have no hard copies of these and I do not know what happened to them. She is deceased now. Is my SSN and her SSN good enough for them to search for my bonds? I do not know how many bonds, nor the face values of them. What do you recommend I do? thanks in advance

On February 26th, 2008 Tom Adams said:

Mike – Sorry, a note from your Aunt won’t do, no matter what country you’re in.

Anthony – the info you’re looking for is on my lost bonds page.

On March 7th, 2008 RALPH LILOIA said:


On March 7th, 2008 Tom Adams said:

Ralph – see my page about the Savings Bond education deduction.

Tom Adams

On March 13th, 2008 Krista said:

my mother-in-law bought several savings bonds for our children over the years, as she did not have their soc#’s she put my husband on the bonds with the children. Unfortunately she put a different man’s (with the same name)soc# on the bonds thinking it was his. Is there anything we can do to fix these?

On March 14th, 2008 Tom Adams said:

Krista – no, the Treasury won’t update a Savings Bond just to fix the SSN – that’s because it doesn’t use the SSN for anything but tracking the bond in case it’s lost.

Tom Adams

On March 20th, 2008 JV said:

I’m interested in bonds, but can’t seem to figure out if an I or EE bond would be better–what would you suggest?

On March 21st, 2008 Tom Adams said:

JV – from a financial perspective, the Treasury is just taking advantage of people with the rate it offers on EE bonds. Series I bonds are a far better investment.

Tom Adams

On April 15th, 2008 laurie said:

My name and/or my husband’s name are on savings bonds that his parents purchased for our children. When I cashed them out to add them to their UTMA I got a 1099-int form from our bank. Do I owe the tax or do my children (who have no earnings as they are minors)

On April 16th, 2008 Tom Adams said:

Hi Laurie – If your children’s names weren’t on the bonds, there’s no way they could owe the tax, so you do.

Tom Adams

On October 3rd, 2008 Kary said:

We have 5 children. I read there is a $5000 cap on I bonds per year. can we purchase (5) $5000 dollar I bonds, one for each of our children?

On October 3rd, 2008 Tom Adams said:

Kary – the limits are per Social Security Number, so you can get five for your kids and two more for your wife and you.

Moreover, you can double that by investing in both seven paper bonds and seven electronic bonds at TreasuryDirect.

Tom Adams

On December 10th, 2008 Lynn said:

If I give a savings bond to my mother, does it qualify for the annual gift exclusion as a gift of present interest, or not (since you have to wait a year to cash it)?

Also, if my child’s name is on her gift as a POD, does that create a gift tax problem for me?


On December 11th, 2008 Tom Adams said:

Hi Lynn – Everything I know about Savings Bonds and gift tax is here and that page doesn’t answer your questions.

But most people don’t need to worry about gift tax – it doesn’t start until after you’ve given away a total of $1 million.

If you’re in that category, your tax advisor is the best person to get clarification from.

Tom Adams

On December 12th, 2008 Lynn said:

Okay, well I bought your book anyway, because it is always best to know as much as possible about a subject BEFORE you go to discuss it with an expensive professional advisor!

On December 15th, 2008 Tom Adams said:

Lynn – my book may not answer your question about gift tax, but it will answer a lot of other questions you have about Savings Bonds, including some you haven’t thought of yet (smile).

Tom Adams

On December 29th, 2008 Billie McCaw said:

Over the years I have bought bonds for my niece’s children, current ages 15, 10, and 9. They are in the child’s name with my niece as co-owner. They would like to cash the bonds and put them in savings accounts for the kids. Will the tax be reported in the children’s names and socials or will my niece have to pay the taxes.

On January 2nd, 2009 Tom Adams said:

Billie – the tax will be reported under the children’s SSNs, but your niece will have to pay the taxes because of the IRS’s kiddie tax rules.

Tom Adams

On February 2nd, 2009 deb benefield said:

My father-in-law bought EE series savings bonds for my three children each year for their birthdays. He passed away in 1986, the year of my divorce from his son. Recently, the kids asked for the savings bonds for college costs and my mother-in-law showed up with only the bonds for the two youngest children. The bonds were mostly in the SS # of the father-in-law and as a gift to the left-out child and once they asked for the SS # for this child when it was her birthday. They kept all the bonds. There should be some out there that they were not able to cash in with my daughter’s SS # on them. Can I fill out a form to see if there are any? Communications have broken down, obviously, with the ex- mother-in-law.

On February 4th, 2009 Tom Adams said:

Deb – What’s important isn’t the SSN on the bond but the name. If only your daughter’s name was on the bond, then only your daughter could cash it. I suggest you have your oldest daughter follow the process here.

Tom Adams

On March 7th, 2009 Brian said:

Me and my wife just had our first child and are starting to save up for her future (hopefully college). We invest $100 per month in an agent controlled mutual fund and have been purchasing $200 of EE bonds each month for nine months now. My question is, how long should we continue to buy bonds before they’re not practical anymore. I was thinking of buying bonds as long as I can then starting a savings account while continuing investing in the mutual funds. Any suggestions? Thanks

On March 9th, 2009 Tom Adams said:

Brian – I’m not sure what you mean by not practical anymore.

There’s a $5,000 annual investment limit on Series EE bonds, but you’re nowhere near that yet and there are easy ways to expand that in your situation.

Historically, Series I bonds have done much better than Series EE.

Tom Adams

On March 24th, 2009 Brian said:

Thanks Tom. I guess what I meant by “not pratical anymore” is this. We are buying these bonds to help pay for our daughters education which should start @2027-2028 school year. Bonds need certain amount of time to reach their max. potential. So at what point would buying Bonds not be a good investment if we wanted to cash them in during her college years? It seems it wouldn’t be pratical to continue to buy them if we can’t cash them in during this time frame. Everyone in our family I’ve talked to gives different advice. We have decided to start buying the I bonds instead of the EE and even that decision was frowned upon by a few. Anyway, thanks for the advice. Just basically looking for the safest and best way to invest to pay for our daughters education. Thanks again.

On March 25th, 2009 Tom Adams said:

Brian – Saving now for your daughter’s education is a good idea. The government has even agreed to help you out by approving several ways that you can save money for education and not pay income tax on the earnings – which increases the amount of money you’ll have for her when she’s college age.

As you can read here, Savings Bonds are one of those ways, but you can’t be sure when you start saving whether you’ll qualify for this when she’s college age. Your income may be too high by then.

Many states have programs called qualified tuition plans or QTPs that avoid that problem, although they may have others. I’m not an expert in this area, but you can get more information with a Google search – include the state you live in like this: “qualified tuition plan” “North Carolina”

To directly answer your question, it’s not exactly true that a Savings Bond has a “maximum potential”. It’s true that EE bonds double in value after a certain number of years (the number depends on when they were issued, currently 20), but they earn interest before and after that. And I bonds don’t have that feature anyhow.

So all you need to know really is that you can’t cash a Savings Bond until it’s a year old and if you cash before it’s five years old you lose the most recent three months of interest. This penalty is already taken out when you look up a Savings Bond’s value, so there’s no penalty on top of what our calculator says your bond is worth.

So, in my opinion, if Savings Bonds work for you as a good way to save for college tuition, then they don’t become impractical until after your daughter is in college. But make sure you read that page I linked to above, as there are a lot of details you need to get right to get the tax deduction for using Savings Bonds for college.

Tom Adams

Comments Closed

June 1, 2010

After six years, over 400 posts, 3,680 real comments, and over 90,000 spam comments (thank you, Akismet, for making managing a blog with comments possible), I am closing public comments on I will contine to update the main articles on this site, but not the comments.

Virtually every question about Savings Bonds has been asked and answered on this site multiple times. Use the search feature (see the box in the gray area near the top of this page) or the detailed menu on the lower part of the home page to find the information you're looking for. If you have a copy of Savings Bond Advisor, you can ask me a question here.

Tom Adams

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