Investing Assets & Markets Bonds How To Gift Bonds Gifting Bonds Explained By TJ Porter Updated on October 6, 2022 Reviewed by Anthony Battle Fact checked by Lars Peterson In This Article View All In This Article How To Get Bonds How To Gift Bonds What To Watch Out For Creative Gift Presentation Ideas Benefits of Gifting Bonds Frequently Asked Questions (FAQs) Photo: The Balance / Alice Morgan If you want to give a financial gift that can grow over time, you might consider giving a bond as a gift. Bonds are debt instruments, representing that the owner of the bond is owed money by a borrower. Typically, bonds are sold by local and national governments, companies, or other organizations. Bonds offer relatively safe returns and can be a good way to save for the future. Learn how to give bonds as a gift and the pitfalls you need to watch out for. Key Takeaways Bonds, in general, can be a great gift that offers their recipients some earnings, especially when interest rates are high.U.S. savings bonds (Series EE and Series I bonds) purchased through TreasuryDirect.gov are easy to buy, and to gift, with no extra fees.Private-sector, corporate bonds can also be given as gifts, but the process can be complex and may involve fees. How To Get Bonds There are a few basic types of bonds. U.S. Treasury bonds: Bonds issued by the U.S. federal government Foreign government bonds: Bonds issued by other governments Municipal bonds: Bonds issued by state and local governments Corporate bonds: Bonds issued by companies To get a bond, you’ll need to purchase it from the issuer or on the secondary market. The U.S. government sells Treasury bonds and savings bonds through a website, TreasuryDirect.gov. Savings bonds can be purchased as gifts while other marketable securities issued by the U.S. Treasury such as Treasury bonds, T-Bills, Treasury notes, and TIPS cannot be purchased as gifts. You can open an account with TreasuryDirect and place gift orders for savings bonds directly from the government. Buying other types of bonds usually involves working with a brokerage. You’ll have to open an account with a broker. Once you do, you may have the option to purchase corporate and municipal bonds directly from their issuers when there is a new bond issued. You also have the option to buy bonds from other bondholders. Note It may be more budget-friendly to gift savings bonds that typically require a minimum investment of $25, as opposed to corporate bonds that need a minimum $1,000 investment. How To Gift Bonds Giving savings bonds as a gift has long been a popular way for parents and family members to give their children a financial present that can grow over time. With paper bonds becoming a thing of the past, the government has worked to make sure that gifting bonds is still an easy thing to do. To give a bond as a gift, both you and the recipient must have accounts with TreasuryDirect. You also need to know the recipient’s full name, Social Security number, and TreasuryDirect account number. Note If the recipient is a child, their parent or guardian must make a minor-linked custodial account for them. The Treasury has video instructions on how to purchase and deliver bonds to someone as a gift. If you want to give other types of bonds, such as corporate bonds or municipal bonds as a gift, you’ll need to work with your broker. The first step is buying the bonds. Once you’ve purchased them, work with your brokerage company to transfer them to the recipient’s account. Each broker has its own process for transferring securities. Generally, the process will be simpler if the recipient has an account with the same broker as you. Transferring the bonds to an account at another broker can take some time and may incur fees. What To Watch Out For: Rules, Regulations, and Reminders Whenever you’re giving a financial gift, the first thing to look out for is the gift tax. There is an annual limit per year that you can give to someone without incurring any gift taxes. Amounts over that threshold count against your lifetime gift exclusion. Only gifts surpassing the exclusion will be subject to the gift tax. Another consideration is taxes the recipient may owe. The recipient will have to pay taxes on any capital gains they receive when selling the bond, as well as on any interest payments they receive. Note If the recipient is a minor, they may be subject to the “kiddie tax.” This taxes unearned income of minors at a higher rate. “One way around the federal tax of a savings bond is to use the funds for higher education purposes,” Nick Stecklin, a CFP with North Capital in Salt Lake, noted in an email to The Balance. If you use the proceeds from redeeming a savings bond for qualified education expenses, the government won’t charge taxes on that income, he said. Finally, you should think about the returns that the bond offers. When overall interest rates are low, any bonds you gift might not earn much interest. Conversely, when interest rates are high or rising, your gift bonds may earn a nice amount of interest. Another alternative to consider is to purchase I bonds, which are designed to keep up with inflation. Transaction Costs To Consider When you’re giving bonds as a gift, you have to consider the cost of both purchasing the bonds and transferring them to their new owner. Note With U.S. savings bonds, the gifting process is relatively simple and there are no fees. Gifting other bonds can be more complicated. First, you’ll have to pay any fees or commissions related to buying the bonds. Each broker sets its own fees, but you could pay anything from a few dollars to hundreds depending on the type and the value of the bonds. You then have to pay any fees charged by your broker for transferring the bonds to a new owner. Many brokers will do internal transfers to other accounts for free but will charge if you’re sending the securities to another brokerage company. Check your broker’s fee schedule to make sure you know the fees you’ll have to pay. Creative Gift Presentation Ideas These days, bonds are largely digital things. Paper savings bonds have become far less common. However, it can be underwhelming to give or receive a gift without having something physical to go with it. One creative option for gifting a bond is to give it alongside something representative of the bond you’re gifting. For example, if you’re giving someone a bond issued by a candy company, you might give them a note explaining the gift alongside a small basket of candy. If you’re giving a savings bond, especially to a child, giving the gift alongside a book about money or investing or something like a collection of the U.S. state quarters might be a good way to give them something physical to remind them of the gift and get them more interested in the bond they’re receiving. Benefits of Gifting Bonds There are a few perks to gifting securities like bonds. One is that there is an annual exclusion before financial gifts count toward your lifetime gift tax exclusion. If you plan to leave a large amount to your heirs, giving them smaller gifts over the course of many years can reduce the overall amount of tax you pay in the future. Gifting a bond can also help you defer or reduce taxes. Giving someone a bond instead of selling it and giving them the resulting cash means you won’t owe capital gains taxes. But more importantly, by gifting a bond you’re giving something that will grow in value over the years, aiding the recipient’s wealth creation. And who knows, it may even spark their curiosity about investing. Frequently Asked Questions (FAQs) Can you gift savings bonds to avoid taxes? For federal EE and I bonds ('savings bonds'), the recipient of the bond pays tax on any interest earned. Interest is paid when the bond is cashed in, or when it matures, and taxes are due then. If you decide to transfer ownership of a savings bond you own, you will be responsible for tax on interest earned up to the time you transfer the bond. Afterward, the new owner of the bond will be responsible for paying the tax. How much can a parent gift a child tax free? There is an annual gift tax exclusion for every tax year. For 2022, it's $16,000. Gift amounts above that count toward the lifetime gift tax exclusion, which is in the millions and changes every tax year. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. TreasuryDirect.gov. "Frequently Asked Questions." TreasuryDirect.gov. "About U.S. Savings Bonds." FINRA. "Corporate Bonds." TreasuryDirect.gov. "Savings Bonds As Gifts." IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2022." IRS. "Frequently Asked Questions on Gift Taxes." IRS. "Topic No. 553 Tax on a Child's Investment and Other Unearned Income (Kiddie Tax)." Fidelity. "How Much Am I Paying for My Bonds?" Charles Schwab. "Fixed Income Pricing." TreasuryDirect. "Tax Information for EE and I Bonds."