What to Know Before Purchasing Bonds as Gifts

By purchasing bonds as gifts, you can give people one of the safest forms of investment because bonds involve a debt obligation from a corporation or the federal government. Here are the basics of what you need to know before purchasing bonds as a gift for someone else.

How Bonds Work

If a corporation needs to raise money, it can do so by offering bonds to investors. As an investor, you can purchase one of these bonds, and then the corporation will pay you a specified rate of interest and, eventually, your initial investment back. 

You can also purchase savings bonds from the United States Treasury. You purchase a United States savings bond for half of its face value. For example, if you buy a $50 savings bond for someone, you are going to pay only $25 for it. After a certain amount of time--when the bond reaches its maturity date--your gift recipient can cash it in for the full $50. 

How to Buy 

If you are buying savings bonds, there are two main ways that you can purchase them for someone else. You can purchase them online through the U.S. Treasury website, or you can purchase them at a bank. In order to purchase a bond for someone else online, you will need to know some specific information about that person. 

First, you will have to set up an account with the United States Treasury website. When you are ready to buy a bond for someone, you will need to know his or her full name and Social Security number. When you buy online, the recipient will also have to have an account with the United States Treasury. You will also have to know the recipient's account number in order to transfer the gift to him or her. If the recipient is under the age of 18, he or she will have to have a minor linked account with a guardian. 

If you want to buy a bond in person at a bank or financial institution, the process is a little simpler. You request a purchase application and fill it out. If you know the recipient's full name and Social Security number, this will make the process easier. The financial institution will link the recipient's information to the bond and then send it to him or her. If you do not know the other person's Social Security number, you can have the bond processed under your number. You will still put the recipient's name on the bond; however, your information will appear on it alongside his or hers. You will not incur any tax liability as a result of doing it this way. 

When you purchase the bond in this manner, you can receive a gift certificate to give to the individual, or you can have the financial institution mail the savings bond directly to him or her. 

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