Intergenerational bonding
February 17, 2012 6:48 PM   Subscribe

Many years ago it was not unusual to give a newborn a U.S. savings bond as a gift. Does this still make sense to do, or has the economy and the political situation made this obsolete? In which case, what would be the current equivalent?
posted by Obscure Reference to Work & Money (28 answers total) 3 users marked this as a favorite
 
Our kid gets savings bonds as gifts fairly often.

Personally I have no idea what to do with it.
posted by k8t at 6:52 PM on February 17, 2012 [2 favorites]


Even GICs over better interest rates than savings bonds. Unless you feel a patriotic need to lose money I suggest finding a better vehicle.
posted by furtive at 6:54 PM on February 17, 2012 [1 favorite]


Even GICs over better interest rates than savings bonds.

In case it's not clear, GICs are the Canadian form of US Certificates of Deposit (aka CDs).
posted by dfriedman at 6:56 PM on February 17, 2012


"Personally I have no idea what to do with it."

I think that's kind of the point. It is meant to stay as it is and be available to "junior" when appropriate.
posted by uncaken at 7:02 PM on February 17, 2012


If I understand the difference between I bonds and EE bonds properly, EE bonds don't make much sense if you expect the interest rate to rebound, as their rate of interest is fixed and quite low at the moment (.6%), so you may well be better off telling the parents to stick $25 in a savings account for the kid. I bonds earn a fixed rate (currently 0%) plus some (possibly negative) rate to account for inflation (they can't drop below 0%). I, uh, have no idea if that makes it worth while. I suppose that when the kid redeems it, in the worst case scenario, it'd hopefully have the same purchasing power that the money you spent on it did.

To be honest, the trick is not losing the damn things. My mom kept mine in the box with the passports, but I have no idea if we managed to redeem it ever. (My great uncle liked giving savings bonds. He was my brother's godfather, so my brother actually has a nontrivial sum in savings bonds. Me, not so much. But $25+interest is still $25+interest I haven't claimed. Unless we did and I forgot about it.)
posted by hoyland at 7:07 PM on February 17, 2012


k8t, you just hang on to it, and the kid can cash it when they are an adult. I had some of these and felt it was a sweet reminder of old friends-of-the-family. It does depend on keeping track of pieces of paper for a long time, though. It isn't much money, it's more a neat sentimental thing, IMO.
posted by LobsterMitten at 7:08 PM on February 17, 2012 [1 favorite]


My daughter gets them on occasion, we just put them in the safe deposit box at the bank. It seems to be a gift from the great-uncle/aunt generation.
posted by Nickel Pickle at 7:09 PM on February 17, 2012


I got a lot as a kid, and cashed them in when I went to college. They were such a cool thing, even though it wasn't a crazy amount of money (I think they double in value at most) it was good to have certificates saying I have money available to me.

I've given them to parents of newborns. I like the message that this is something for the future, to anticipate a future in which a new baby will be an adult...it seems hopeful and positive.
posted by xingcat at 7:19 PM on February 17, 2012 [3 favorites]


If my grandmother is to be believed, as of 2012 the banks won't sell bonds anymore. They will only be purchased online. And given that my grandmother will never put her or anybody else's SSN into a web form, she says she's done giving them as gifts.

Which frankly is fine with us, because our son has a savings account that's just as convenient.
posted by TallulahBankhead at 7:31 PM on February 17, 2012


The U.S. Treasury no longer sells paper savings bonds. You can still buy electronic bonds to give as a gift, but that seems kind of weird to me.
posted by Nothlit at 7:33 PM on February 17, 2012 [1 favorite]


hoyland, you can find out if you cashed in the savings bonds. Go to the Treasury Department's Treasury Hunt® page and type in your Social Security number. If you have never redeemed them, they'll be listed. If you've got old bonds, keep them in a safe deposit box or a fire-proof safe (though lost/damaged ones can be replaced, with effort).

For what it's worth, I got lots of savings bonds when I was born and for my Bat Mitzvah. I bought my first car with the money (plus a little of my own savings). Yes, the pretty little certificates are no more, but I still like the idea of giving kids something to hold onto.
posted by The Wrong Kind of Cheese at 7:35 PM on February 17, 2012 [4 favorites]


So if I'm not quite sure where the hell they are, when kiddo is grown, can he just type his SSN in somewhere and be handed a bunch of money?
posted by k8t at 7:36 PM on February 17, 2012


U.S. Treasury no longer sells paper savings bonds

I am shocked and saddened by this news.

posted by LobsterMitten at 7:57 PM on February 17, 2012 [3 favorites]


I view them as an exercise in patience. I'm an adult now, but I still have bonds from when I was an infant, and from various stages in my life. I look forward to cashing them in as they reach full maturity, and reflecting on what has changed for me since I received/bought them.
posted by illenion at 8:03 PM on February 17, 2012


The bonds I got as a child approximately doubled in value. I was born in 1974.

Most of the kids I know nowadays, including my own, have some sort of college saving account, which will probably yield at least a double your money value over 18 years.
posted by padraigin at 9:03 PM on February 17, 2012


If you buy them, please don't get the ones that take like 30 years to mature. I'm 28 and still have some that are sitting in a safe deposit box. They're not going to be a ton of money when I can actually cash them in, and I probably would have really appreciated the money when I was in college rather than when I'm ready to have kids myself!
posted by radioamy at 9:17 PM on February 17, 2012


I think the point of it is to have something that doesn't cost much now, but is more valuable and kind of neat for the kid exactly when the kid is finally old enough to appreciate it. If that's the idea behind the gift, there are other things you can do that have the same effect.

I know someone who gives newborns a bottle of that year's wine (a mid-range value one, that is recommended for cellaring), with the idea that the kid can open it on their 18th birthday and it will be kind of cool to have an 18-year-old wine, as well as maybe improved. (Although if the parents don't have a wine cellar, I suspect 18 years of keeping it in substandard conditions might not actually improve it. Whisky or something might be a better option in that case, although maybe too expensive).
posted by lollusc at 9:56 PM on February 17, 2012


If I recall correctly, one of the reasons for giving savings bonds as gifts to children is that they are one of the few investments that could legally be held by minors.
posted by ob1quixote at 10:40 PM on February 17, 2012 [1 favorite]


I received a $100 savings bond when I was born from my great aunt. I did think it was sweet and I ended up cashing it out when I was maybe 18 or so. I didn't spend it on anything cool but I liked the concept of the gift because she was thinking of my future.

With that gift in mind, I did a similar thing for a nephew of mine: I started a 529 plan (college savings account) for him. I started it with $25 and I also, unbeknownst to his parents, set up to have an automatic deposit to it from my bank account for $25 every month. This account is now worth over $1000, and he is 3 years old - my return rate is pretty decent, considering the auto-withdrawal didn't start until he was about 6 months old and with the recession going on. I have not missed this money. I believe this is going to be a good gift, and I chose to do it particularly because I know that his parents have limited financial means and they are probably not going to think about saving for college for him for a long time yet. I like the idea that when they look in that account someday, they'll get a good surprise. Plus, the money grows tax freeeee!

In case anyone is wondering, you can set up a 529 plan for a child who is not your own and who is not related to you, if you want, but you need their social security number. Remember you can set up the 529 plan in any state, it doesn't have to be their or your home state (some have better plans than others).

This would be my recommendation for the modern equivalent of the savings bond. Another idea would be to buy the child some shares in a Direct Reinvestment Program (DRiP) from a company that pays dividends. You can set the dividends to automatically be reinvested. That would substitute for you continuing to contribute to the thing yourself, and you might end up doing quite well over a period of many years, although since stocks are much more volatile you would face potentially losing money.

Intriguing idea about the bottle of wine but I never would have appreciated that as an 18 year old. :-)
posted by treehorn+bunny at 11:59 PM on February 17, 2012 [9 favorites]


Savings bonds aren't really a great investment these days. It's not really that different then taking paper money and sticking it under your mattress. The interest rate on a 30 year bond is 3.125% per year (if I'm reading that chart right) Remember, inflation is usually about 3% (and could bounce back up if the economy ever gets going again). So, basically you end up with what you started.

Inflation indexed the yield is 0.75%.

Basically what it means is that people basically assume that a treasury bond has no risk. and are willing to pay full face value for them, just to keep their money safe. Most of the purchasers are huge corporations and the worlds largest countries (China, Japan, Germany, etc)

Basically, when you buy a treasury bond, you're loaning the government money, and the national debt is the sum total of all the treasury bonds out there.

Anyway, if you want something with more yeild, you have to take more risk. There are lots of investments you know will still be valuable in 10 years, but what about 30? Microsoft would have seemed like a rock solid investment in 2000 but today it's pretty meh. Over the past 10 years it's gone up 3%, while paying about 4% in dividends a year. Not terrible, I guess, but not doing much more then keeping pace with inflation.

What you could do is invest in an index fund like the Dow or S&P 500. Or you could get a commodities thing, like steel or copper ETFs. Even if half the companies out there are replaced with other ones, people will still need steel and copper.

One idea though might be buying physical gold or silver. A lot of these things are way over hyped but really in terms of gift giving potential gold really works well. You can just give someone some gold or silver coins. Gold has gone up a lot in the past few years and might go more (of course the price might crash too, you never know)

Silver is $33 an ounce, so $100 would be about 3 oz, or you could get a pound of it for $500.

I think that would be a lot cooler then a savings bond, especially for a kid. Think back to when you were a kid, would you rather have a piece of paper, or a gold coin or bar of silver?
posted by delmoi at 3:18 AM on February 18, 2012


If you buy them, please don't get the ones that take like 30 years to mature. I'm 28 and still have some that are sitting in a safe deposit box. They're not going to be a ton of money when I can actually cash them in, and I probably would have really appreciated the money when I was in college rather than when I'm ready to have kids myself!
You can sell bonds them whenever you want. I'm not sure what the actual mechanics of selling a paper bond would be but you could talk to your bank about it. People buy and sell bonds all the time.
posted by delmoi at 3:20 AM on February 18, 2012


I cashed 10k worth of EE bonds that were given to me as a child when I was in college. They were worth 85% of full value at the time. The money was more useful at the time than slightly more money would have been in 13 years at full maturity. I saved two thirds of it and spent the rest taking a very depressed and overworked relative on a vacation he would have never otherwise taken. I definitely don't regret using the money that way.

It is super easy to cash savings bonds. Takes 5 minutes at the bank.
posted by Cygnet at 5:05 AM on February 18, 2012


If you buy them, please don't get the ones that take like 30 years to mature.
Well, that's near impossible nowadays. The Treasury Direct Web site offers bonds (EE and I) at face value. They earn interest at whatever rate they earn interest at, and can be cashed in without penalty after 5 years. I believe they stop earning compound interest after 30 years.
posted by Gungho at 6:04 AM on February 18, 2012


As far as not giving you a real certificate anymore, the funny thing is that the Treasury site has some sort of fake gift certificate you can print out, to send to the giftee.
posted by DMelanogaster at 6:11 AM on February 18, 2012


Oh also is it my delusion that you buy e.g. a thousand-dollar Savings Bond for $500? And, if so, isn't that a good investment? Where did I get that idea from?
posted by DMelanogaster at 6:15 AM on February 18, 2012


Oh also is it my delusion that you buy e.g. a thousand-dollar Savings Bond for $500? And, if so, isn't that a good investment? Where did I get that idea from?

That's how Series EE bonds work. You buy them at half of face value, and they earn a fixed interest rate (right now that's 0.6%). At year 20, they are adjusted up (if necessary) so that they are equal to face value. This is equivalent to retroactively applying a 3.5% APR over the entire 20 year period. Then they continue to earn the original fixed rate until year 30. If you redeem before year 20, however, you only earn whatever interest has accrued at the fixed rate, not the 3.5% rate. So if you want them to double in value, you have to be patient.
posted by Nothlit at 6:39 AM on February 18, 2012


Savings bonds purchased thirty years ago or so had much, much higher interest rates. They were much better gifts back then.

If I had the opportunity to give young children gifts like a savings bond so many years ago, I would just put a cash equivalent in their IRA or Roth IRA. If they didn't have one, I'd work with their parents to create one for them. IRAs and Roth IRAs are really handy under current law; adults can withdraw from them penalty-free for certain education and home-purchase expenditures.
posted by infinitewindow at 7:35 AM on February 18, 2012


I say,

"Oh also is it my delusion that you buy e.g. a thousand-dollar Savings Bond for $500? And, if so, isn't that a good investment? Where did I get that idea from?"

Yes, I am correct -- it was a delusion. From the Treasury Direct site:

"Key Facts:

Buying Electronic EE Bonds

Sold at face value; i.e., you pay $50 for a $50 bond and it's worth its full value when it's available for redemption."
posted by DMelanogaster at 6:09 AM on February 20, 2012


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