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Why Savings Bonds Are A Great Gift Idea For Newborns And Children.

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As a kid I never thought it was very cool when I received savings bonds as gifts on birthdays and holidays. “Are you serious? What am I supposed to do with these?” I mean, it was a nice gesture and all, but since I could not use the money for new toys, it really was not what I wanted…that is until I started getting older and realized that all these bonds given to me over the years was going to add up. I kind of wish that the people who gave me the bonds just gave them to me silently and handed me toys as well, but I did indeed know about each and every one of them that I received, because I had to write thank you notes every time.

That all being said, the next time a friend or family member has a baby, think about picking the kid up a savings bond. Put it in his or her name and hand it to the parents to hold on to. If the kid gets enough of them, when they are older these pieces of paper will be worth a pretty penny. With no state or local taxes to pay on them, you only have to worry about federal taxes when they are redeemed.

Why am I writing about this? Because we just cashed a bunch of bonds that had stopped earning interest…and the amount was nothing to sneeze at. Even though I know quite a bit about handling my money and such, turning in these bonds was quite an experience. I had never had this money, never invested this money, and here I was with a pile of cash to do with what I pleased. So we blew it on a 108 inch plasma. Um, no…just checking if you were still reading. We are putting most of it in our home fund and a little bit of it in our emergency fund just to pad it a little bit more. It certainly was not a bad gift, seeing it through my eyes as an adult.

Anyway, just something for you to think of before you drop $200 on plastic toys…take $50 of it and help the “future” kid out.


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Comments (11)

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  1. I am not a big fans of bonds as gifts. As parents money invested for the long term would be better put in ESA or mutual fund accounts. A 4 percent rate of return on bonds vs average market yield is quite a gap…Especially when children are very young.

    Just my thoughts.

    I cashed in every bond I had early or not, and made what I considered wiser uses for the money.

  2. Wil says:

    My parents used to do this for all of us kids as we were growing up. Any money we got (odd-jobs, gifts, etc) was converted to bonds. We were kids, they provided all the necessities for us, and we never really thought about it. We would have just blown the money anyways. They kept the bonds for us. When we moved away from home, the rule was simple: If we show that we could match the face value amount with money in an account (and they made us prove it), and if we asked for them, we could have the bonds. If not, the bonds were used to “bail us out” of problems we got ourselves into. Few of us were able to match the amount in cash value. Some did, and got hefty sums of money, effectively doubling our worth. Some of my brothers needed the bail, but others made an even better deal. They asked my parents to convert the bonds into bonds in the name of their children (my parents’ grandchildren). Those kids will have a surprise when they get old enough to appreciate it.

    If I’m investing for my kids (which I don’t have yet), I will look at the best investment vehicle, but I would be glad to have any family members sending in bonds to my kid(s).

  3. Collette says:

    I thought you had to have the child’s social security number in order to give the child a bond from you. I have two out of state friends who have just had children and I would love to do this for them but am not going to ask them for the child’s social sec #. Any thoughts?

  4. I’d have to agree with happyrock. Although bonds are a much better alternative than simply giving cash I plan on buying my children either low cost mutual funds or actual securities (but hey bonds are better than storing it in a plastic piggy bank)

    Cheers,
    MCM
    http://middleclassmillionaire.blogspot.com/

  5. tehnyit says:

    Would it not be much better to open up a something simple like a low cost, high interest bearing account or some other investment?

    I reviewed a book the focuses the investment on kids, but it has an Australian focus.

    http://cheap-as-chips.blogspot.com/2007/04/another-day-another-dollar.html

    I have outlined three simple, obvious and effective tips from the book. Perhaps, the specific advice from the book may also be applicable for Americans as well.

  6. david says:

    Thanks for all the comments. It might be better to deposit money into accounts, but there are two advantages to bonds. One, you dont have to pay the full price, and 2 there are no state tax bills due upon redemption.

  7. I think giving bonds is kind of a dirty trick, personally. THe face value of the gift is say, $50, but the actual value when you give the gift is really $25. My son was very interested in money and very un-thrilled when he discovered he would have to wait about 15 years for the gift to be worth what the bond says on its front!
    But bonds are better than the all time worst gift, which is a single share of a stock. People think it’s going to be educational, but it generates volumes of paperwork and the transaction fee to sell the damn thing is more than the stock’s value. We finally donated them to a charity!

  8. David says:

    It might be a “dirty trick” as you said, but I still think it is a good idea. Once I got old enough I realized the benefit of these. People could give you something they could afford at that point, but you got the full benefit of them when you got older.
    As for stocks… there are a few companies I wish I had gotten one share of!

  9. […] presents Why Savings Bonds Are A Great Gift Idea For Newborns And Children. posted at My Two Dollars. David says, “As a kid I never thought it was very cool when I […]

  10. Duketime says:

    The big key to remember here is inflation. I can marginally support giving a child an inflation-indexed bond (i.e. one that pays interest relative to inflation, thus guaranteeing that you are never “losing money”–by receiving interest lower than inflation–on your investment), but I can in no way endorse giving a straight savings bond.

    On the shorter-term a high-yield savings account or a CD can do the trick with more competitive rates and on the longer scale you can go ahead and get a low-fee ETF (assuming individual stocks are too risky) which will likely give solid returns and see relatively low risk. The long timeline and the diversified ETF smooths out much of the volatility and if the market crashes the child may have greater troubles than the yield on the gift from grandma.

    However, bonds can be just as much a profit vehicle as stocks if they are actively traded (and not held until maturity) because their values fluctuate with interest rates (and interest rate speculation) but, since I assume you don’t want the investment to have to be monitored, I’d still go with the ETF.

    Last thing is that I’d say your stocks could be a little more diversified … and that you might want to rotate out of tech entirely (as of 6/18/07) because tech has been really soft so far and there’s been much action in commodities and infrastructure / construction / heavy machinery (like BA), and it’s really tragic for there to be a party going on in the market, but miss out on it.

  11. david says:

    Thanks for the tips Duketime! And those are just individual stocks I hold, most if not 99% of my investing is in funds only. Thanks anyway!

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