Forget the fact that the child or their parents may forget in a dozen years or so that the savings bonds exists, or where they are or how to log-in to get access to it online.
If you want to give a child the gift of money or teach them the value of compounding interest, buying a savings bond from the U.S. Treasury isn’t going to do much for them.
The low-risk Series I savings bonds pay 0 percent interest through Oct. 31, 2015. An inflation rate is also paid and is calculated twice a year. Another low-risk bond, the Series EE and E bonds, currently pay 0.30 percent interest for up to 30 years. That’s not much of a gift beyond the initial investment, though it will teach them how to hedge against inflation.
No more paper savings bonds
As of 2012, paper savings bonds were no longer sold at banks. For a kid, that was one of the key advantages of the gift, to have a copy of something they rarely get — money. It would probably be hidden by their parents for safekeeping, but at least it was something tangible they could look at from time to time and imagine what they were going to do with it someday.
Savings bonds must be bought electronically, and the government website TreasuryDirect.gov requires a few basic.
Savings bonds buyers must open an online account and make sure the recipient sets up a TreasuryDirect account also. For each child under 18, parents will need to set up a minor-linked account.
For a grandparent buying a bond as a gift, they’ll need the child’s Social Security number. If they want savings bonds in two names, including a parent’s, then they’ll need that parent’s Social Security number also.
Better options than savings bonds
There’s nothing wrong with giving a child a safe investment such as a savings bond as a gift. They’ll at least learn how little their money grows in today’s bond market, and will hopefully want to explore other options.
One advantage of giving money is it can help teach a child how to manage their money and how they can earn more money by investing it. Cash can quickly be spent or lost. Here are some options:
A savings account: Half of any cash or checks my daughter gets as gifts goes into her savings account. The interest rate is lousy, but that’s not the point. We go to the bank together to make the deposit, and she gets a monthly statement showing the balance. Hopefully, she’s learning the habit of saving. The other half of any cash gift she’s allowed to spend.
College savings: Deposit the gift into the child’s college savings account. If they don’t have one, help their parents open an account. This isn’t a gift the child will see right away, but the message is to teach them about saving for an important long-term goal and how compounding interest will make their money grow. My daughter gets a monthly statement showing how much money she has saved for college, and it’s interesting seeing how much it grows each month.
Buy stock: Disney is one of my favorite stocks to buy for a child for many reasons. Not only has it performed well for the last 15 years and is a good value, but it’s a company that most children will have an interest in because it’s part of their daily lives. If they don’t own a few Disney toys, they’ve probably visited its theme parks or watched its movies or TV shows.
Disney and other stocks have a Dividend Reinvestment Plan, or DRIP, that make buying a few initial shares easy. The dividends are automatically reinvested in more shares.
Cash: While not my first choice because a child can quickly lose or spend it, it’s easy to put some cash in a card or envelope and hand it to a child and instantly see their happiness in being part of the adult world with money in their pocket. If they spend it immediately on a toy or something frivolous, that’s OK. Sometimes, that’s what gifts should be for.
What alternatives have you used for savings bonds?