Purchasing Bonds for Kids

Purchasing bonds can be tricky, especially when you're buying them for another person. A savings bond is one of the best gifts you can give a child because it is money in the bank for them later. Let's look at how to buy savings bonds for kids, who can cash it, some more reasons why buying bonds for kids is a good idea, and paper vs. electronic bonds.

How to Buy a Savings Bond

Most banks will sell bonds. Visit your local bank or another financial institution that sells them. Fill out the required paperwork to obtain and bond, and pay for it. The bond will be mailed to the recipient, with the issue date as the application date so there is no chance of losing potential interest on the bond. While there is no need to claim and file taxes on the bond until the child reaches 18 and redeems it, there may be some instances, for example, where the amount earned from the bond exceeds a preset limit. If this happens, taxes may have to be filed before the child reaches age 18.

Who Can Cash a Savings Bond

Only the owner of the bond can cash it in. This means that a child will have to wait until he or she is 18 years of age before being able to access the funds in the bond. If for some reason they do not want the bond anymore, it can be transferred to another person, but taxes may need to be paid in order to do this. It is possible to name a beneficiary, so that in the event of the owner's death, another person has access to and can cash in the bond.

Why Buy Bonds for Kids?

Although bonds aren't going to be as interesting for most children to open as a toy would be, a bond is an investment, whereas a typical toy will break or be tossed out within a few years time as the child outgrows it. With enough growth or a high enough initial bond purchase, the bond may be able to pay for things such as a car, or a college education for the child. While this doesn't seem important to them when they are young, it will be at some point either shortly before or shortly after the bond is eligible for redemption.

Paper vs. Electronic Bonds

Paper bonds are sold at half their face value, and electronic bonds, available from the US Department of Treasury website, are available for their full face value. They both operate the same way, so it is a matter of preference and convenience. As a gift, electronic ones can be easier, but it is best to have a gift certificate in a greeting card so the recipient can see the gift.

blog comments powered by Disqus
Scottrade