Yes, savings bonds (Series EE or I) are a good, low-risk option for grandchildren due to government backing, guaranteed growth, and tax advantages for education, offering a simple way to save for future goals like college, but they offer slower growth than stocks and count as a student asset for financial aid, making alternatives like 529 plans often better for education funding.
Tax-efficient options for investing for grandchildren
Junior ISA (JISA) - A Junior ISA is one of the most popular ways of saving money for grandchildren. These accounts offer tax-free growth, meaning any interest or gains are not subject to capital gains tax (CGT).
The Best Savings Bonds for Grandchildren
Series EE bonds are the steady Eddies of the bond world—reliable and predictable. They earn a fixed rate, and here's the kicker: They're guaranteed to double in value after 20 years. If the interest doesn't get you there naturally, the Treasury makes up the difference.
New EE bonds are unlikely to be a good gift for a child. They make abysmal rates unless you hold them for at least 20 years, so the child will mature before the bonds will. If they are given to an absolute newborn, then maybe they can cash them out to pay for the tail end of college.
Some financial gifts to consider giving are 529 college savings contributions, shares of stock, custodial accounts, savings bonds, prepaid debit cards, and personal finance books can help teach money skills.
They are sold at face value, so you'll pay $50 for a $50 bond. The bond is worth its full value upon redemption. The interest is issued electronically to your designated account.
There are various ways you can gift money to your grandchildren, including:
Cons of savings bonds
Flexibility: Savings bonds aren't very flexible. They're locked in for at least a year and incur a penalty of the last three months' interest if redeemed in less than five years.
You may give each grandchild up to $16,000 a year (in 2022) without having to report the gifts. If you're married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $128,000 a year with no gift tax implications.
The best way to invest $1000 for a child depends on your goal, with a Custodial Brokerage Account (UGMA/UTMA) offering the most flexibility for general uses (car, home) and a 529 Plan ideal for tax-advantaged college savings, while a Roth IRA for Kids suits earning children for long-term growth, all leveraging long-term growth potential through ETFs or index funds, with the new "Trump Account" being a specific, limited-time option for younger kids.
Interest Rates and Returns: Bonds often have higher interest rates than CDs. Liquidity and Access to Funds: CDs typically incur penalties for early withdrawals, while bonds can be sold before maturity without penalty; however, you may incur a loss if the price of the bond is below the purchase price.
The best time to cash a U.S. savings bond (Series EE or I) is after 5 years to avoid losing interest, but ideally at 20 years for EE bonds (guaranteed to double) or 30 years for full maturity, as they stop earning interest then, preventing inflation loss; always cash on the first of the month to maximize interest earned, but never before 1 year.
Savings bonds
Because they're supported by the government and they offer a guaranteed return, some might consider them one of the best investments for grandchildren. With Series EE bonds, for example, you buy them at half their face value, and the Treasury guarantees they'll double in value in 20 years.
There's no set age for grandparents to stop giving gifts; it's a personal choice based on finances, enjoyment, and family tradition, often shifting to less frequent or different types of gifts (like for weddings/holidays) after high school (around 18) or college (around 21-22). Many stop when it feels like a burden, while others continue into adulthood as long as they wish, sometimes transitioning to just Christmas or focusing on spouses/great-grandchildren.
I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.
Gifting electronic EE or I savings bonds
A child under 18 can have a TreasuryDirect account if the child's parent or other adult custodian has a TreasuryDirect account and sets up a linked account for the child. In TreasuryDirect, you can give anyone either EE or I savings bonds.
Treasury securities are considered one of the safest investments because they are backed by the U.S. government. They're issued in different maturities, ranging from a few days to 30 years, allowing investors to choose the term that best fits their investment goals.