Can You Gift a Bond? Everything You Need to Know

Are you looking for a unique and meaningful gift for a loved one? Consider giving them a bond. Gifting a bond can not only boost the future finances of the recipient but also teach them a valuable lesson about managing money. In this comprehensive guide, we will explore everything you need to know about giving bonds as a gift.

What Are Bonds?

Before we dive into the specifics of gifting bonds, let's first understand what bonds are. Bonds are fixed-income securities that represent a loan made by an investor to a borrower. When you buy a bond, you are essentially lending money to the bond issuer, which can be a corporation, municipality, or government.

Which Bond Should I Buy as a Gift?

When it comes to choosing the right bond to gift, there are several options to consider. The most common type of bond is a savings bond, which is issued by the government. Savings bonds are considered low-risk investments and can be a great choice for gifting.

Types of Savings Bonds

There are two main types of savings bonds: Series EE bonds and Series I bonds. Series EE bonds are fixed-rate bonds that earn a fixed interest rate over a 30-year period. On the other hand, Series I bonds are inflation-protected bonds that adjust their interest rate based on inflation.

Where and How Can I Buy Savings Bonds?

If you have decided to gift a savings bond, you may be wondering where and how to buy them. You can purchase savings bonds directly from the Treasury Department's website or through your bank. The process is simple and can be done online or in person.

How to Keep Track of Your Savings Bond Over Time

Once you have purchased a savings bond, it's important to keep track of its value over time. This can be done by checking the Treasury Department's website or using a bond tracking service. By staying informed about the value of your bond, you can make informed decisions about when to cash it in.

Value of a Savings Bond Over Time

One of the advantages of gifting a savings bond is that it increases in value over time. The longer you hold onto a savings bond, the more it will be worth. It's important to note that savings bonds have a maturity period, which is the length of time it takes for the bond to reach its full value.

Maximizing Your Savings Bond Returns

If you want to maximize your savings bond returns, there are a few strategies you can consider. One option is to hold onto the bond until it reaches its full maturity. Another option is to reinvest the interest earned from the bond into additional bonds. By doing so, you can continue to grow your investment over time.

Yearly Cap on Savings Bonds

It's important to be aware that there is a yearly cap on the amount of savings bonds you can purchase. As of 2021, the limit is set at $10,000 per person, per year. If you are gifting a bond, make sure to stay within this limit to avoid any complications.

Can't Decide Which Bond to Buy? Consider ETFs

If you are having trouble deciding which bond to buy as a gift, you may want to consider ETFs (Exchange-Traded Funds). ETFs are investment funds that trade on stock exchanges, similar to stocks. They offer a diversified portfolio of bonds and can be a convenient option for gifting.

How to Gift Savings Bonds

Now that you have a better understanding of bonds and the different options available, let's dive into the process of gifting savings bonds. Here are the steps you need to follow:

1. Decide on the type of bond you want to gift: Whether it's a Series EE bond or a Series I bond, make sure to choose the right type of bond for the recipient.
2. Purchase the bond: Visit the Treasury Department's website or your bank to purchase the bond. Provide the necessary information and make the payment.
3. Choose the gifting option: You have the option to gift the bond electronically or in paper form. Electronic gifting is convenient and can be done directly through the Treasury Department's website. If you prefer to give a physical bond, you can request a paper gift bond.
4. Present the bond: Once you have completed the purchase and chosen the gifting option, it's time to present the bond to the recipient. You can do this by printing out the bond certificate or by providing them with the necessary information to access the electronic bond.

How to Cash in a Savings Bond

If the recipient of the bond decides to cash it in, they can do so once the bond reaches its full maturity. The process of cashing in a savings bond is straightforward and can be done through the Treasury Department's website or at a local bank.

Gifted Bond Tax Considerations

When it comes to gifting a bond, there are some tax considerations to keep in mind. The interest earned from a savings bond is subject to federal income tax, but it is exempt from state and local taxes. If the recipient cashes in the bond, they will need to report the interest as income on their tax return.

What is the difference between EE and I Bonds?

If you are considering gifting a savings bond, you may be wondering about the difference between EE and I bonds. The main difference lies in how the interest is calculated. EE bonds earn a fixed interest rate, while I bonds earn a combination of a fixed rate and an inflation rate.

Is there a deadline for gifting a savings bond?

There is no specific deadline for gifting a savings bond. You can purchase and gift a savings bond at any time. However, it's important to note that savings bonds have a maturity period, which is the length of time it takes for the bond to reach its full value.

Do you pay taxes on savings bonds when cashed?

Yes, you will need to pay taxes on the interest earned from a savings bond when it is cashed. The interest is subject to federal income tax, but it is exempt from state and local taxes.

The Bottom Line

Gifting a bond can be a thoughtful and meaningful gift that can boost the future finances of the recipient. By choosing the right type of bond and following the gifting process, you can provide a valuable lesson about managing money. Just make sure to consider the tax implications and stay within the yearly purchasing limit. Happy gifting!