How to Buy Savings Bonds for Kids

How Do Savings Bonds Work?

Savings bonds are issued through the U.S. Treasury and insured by the federal government. You can purchase them for as little as $25 or for as much as $10,000. When you buy a savings bond, you're essentially lending money to the government to be paid back at a later date. In the meantime, interest can accumulate for up to 30 years. You can technically cash in a savings bond one year after buying it, but you'll have to wait at least five years before cashing in to receive all the accrued interest.

If you're giving a savings bond as a gift, the idea is for the recipient to wait until the bond has reached its full maturity before redeeming it. As of April 2021, roughly 80 million savings bonds—with a total value of $29 billion—had matured but had not yet been redeemed, according to the U.S. Department of the Treasury.

There are two different types of savings bonds:

• Series EE bonds: Available in electronic form, these types of bonds pay out a fixed interest rate that accumulates each month. Their value is guaranteed to at least double after 20 years. Series EE bonds that are purchased through April 2022 will earn 0.10%.
• Series I bonds: These are also available electronically, though you can use an IRS tax refund to purchase a paper Series I bond. They're different from Series EE bonds in that they use a combination of two different interest rates—a fixed rate that doesn't change and a fluctuating rate that goes up and down with the rate of inflation. The composite rate for a Series I bond purchased through April 2022 is 7.12%. Part of this rate is indexed to inflation every six months.

Note that purchasing limits do apply. Within a given calendar year, you can buy up to $10,000 in electronic Series I bonds, $5,000 in paper Series I bonds, and $10,000 in Series EE bonds. It's also worth mentioning that these numbers exclude any savings bonds that are purchased as gifts.

How to Cash In a Savings Bond

You'll first want to determine how much the bond is worth. You can use this savings bond calculator for paper bonds, which can be redeemed at most financial institutions. Just be sure to bring proof of identification. You can log in to your TreasuryDirect account to see the value of electronic savings bonds and redeem them (if you're ready). Once redeemed, the cash value will be deposited into your checking or savings account within a couple of business days.

There are some additional steps to take if redeeming a savings bond for a child. If it's a paper bond, the parent must write both their name and the child's name on the back of the bond. They'll also need to put in writing that they are indeed the child's legal guardian. (The Treasury requires guardians to use specific language.)

Alternatively, they can fill out this form, which may require a certified signature, and send it directly to the Treasury. For electronic savings bonds, parents can create a TreasuryDirect account for their child and link it to their own account, then redeem bonds as they wish.

How to Buy a Savings Bond for a Kid

You can easily buy savings bonds online at TreasuryDirect.gov. They can be put in your own name or the name of the child for which they're being purchased. If the savings bond is to be a gift, be prepared to provide the child's full name and Social Security number. The recipient must also have their own TreasuryDirect account. If not, you have the option of holding the gift in your account until one is established for them. You can purchase anywhere from $25 to $10,000 in gift bonds.

The Bottom Line

While returns are generally less robust compared with higher-risk securities like stocks, savings bonds can be good starter investments for children. The stronger your financial health, the better positioned you are to explore these options. Strong credit is a key part of financial wellness; you can check your credit score and credit report at Experian at no charge to see where you stand.