Savings bonds for kids provide a reliable way to set aside money for the future while benefiting from government-backed security. I bonds, which are issued by the U.S. Treasury and earn interest that adjusts for inflation, are one option for your children or grandchildren. While not specifically designed for kids, I Bonds can be purchased as gifts or held in a minor’s linked TreasuryDirect account, with an adult managing the funds until the child comes of age.
If you’re not sure whether I bonds are the right asset to give as a gift, consider talking to a financial advisor.
What Are I Bonds?
I bonds, which are short for “Series I Savings Bonds,” are a type of savings bond issued by the United States Department of the Treasury. This type of financial investment is designed to help individual investors save money while providing protection against inflation.
I bonds are typically considered a low-risk investment option because they are backed by the government. These bonds have two main components that allow investors to earn money: a fixed interest rate and an inflation-adjusted interest rate.
The fixed interest rate is determined when you buy the bond and remains the same throughout the life of this investment. The rate is set by the Treasury to provide a base level of return.
The second component, an inflation-adjusted interest rate, is calculated semiannually. It’s based on changes in the Consumer Price Index for All Urban Consumers (CPI-U), which reflects the rate of inflation.
You can typically redeem an I bond after one year, but you will lose three months of interest if you cash it in before five years. As an investor, you’re incentivized through the combined interest rates to hold your I bond long-term so that it can keep pace with inflation and protect the purchasing power of your investment. I bonds can be held for up to 30 years.
Are Bonds a Good Investment for Children?
I bonds can be good investments for parents or grandparents who are looking to save money for their children and grandchildren.
First, I bonds can be a steadier and more predictable investment than the stock market – its redemption value will not decline because it is backed by the U.S. government.
Second, I Bonds offer an advantage because their returns are indexed to inflation – the Treasury adjusts rates every six months to keep pace with cost-of-living increases.
Finally, another benefit of buying I bonds for children or grandchildren is their tax advantages. The interest is typically subject to federal income tax but is exempt from state and local taxes. And, if the funds from an I bond are used for qualified educational expenses, the interest may be tax-free.
For these reasons, I bonds can be a smart choice for parents and grandparents who want to gift their loved ones an investment that is structured to be financially secure and inflation-protected.
How to Buy Savings Bonds for Kids
If you’re interested in buying I bonds, you’ll need to open a TreasuryDirect account. To do so, you will need to provide the following information, including:
- Your tax ID number (Social Security or Employer Identification Number)
- An email address
- A bank account and routing number
Once your account is set up, the steps to buy an I bond are simple:
- Go to your TreasuryDirect account
- Choose BuyDirect
- Choose I bonds, then click “Submit”
- Fill out the rest of the information
How Far in Advance Should You Buy I Bonds?
According to TreasuryDirect, purchases of savings bonds are generally issued to accounts “within one business day of the purchase date.” If you buy a bond on a non-business day, the purchase date will be moved to the next available business day.
Bottom Line
I Bonds offer a way to save for a child’s future with government-backed security and inflation-adjusted returns. They can be purchased easily through TreasuryDirect and managed by an adult until the child is old enough to take ownership. With predictable growth and potential tax benefits, they can be a practical choice for those looking to set aside money for education or other future needs.
While they may not be the right fit for every situation, they provide a structured and reliable savings option backed by the U.S. Treasury.
Tips for Investing
- A financial advisor can help you make a long-term investment plan for your needs and goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- You can also use an investment calculator to help you estimate how much your money in your portfolio might grow over time.
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