My daughters grandma just said shes gonna buy my daughter a 50 dollar saving bond. I don't even know what it is. She said if i wait til her 18th birthday to cash it, it can be doubled but idk what it is.
Thanks
It is a document (traditionally paper, but now often electronic) that says that the U.S. government will pay her money in the future. There are two types that are commonly purchased now:
1. Series EE Savings Bonds are purchased for 1/2 of their face value. (For example, a $50 EE savings bond costs $25.) They gradually increase in value at either a fixed rate or a rate determined by the rates on other types of U.S. government debt.
2. Series I Savings Bonds are inflation indexed. They are purchased at face value (for example, a $50 Series I savings bond costs $50) and increase in value at a fixed rate plus the rate of inflation in consumer prices for urban consumers. (It does not matter where you actually live in an urban area; the government just uses urban consumer prices for calculating the inflation rate.)
If your daughter has no other income and is not required to file a tax return, it would be best for her to file a tax return each year anyway, and report the interest earned on the bond each year on her tax returns. The amount will be so low that she will not be required to pay any tax. She does have the option to wait to report the interest to the IRS until she redeems (cashes) the bond, but then she will need to report all the accumulated interest at the same time and might have to pay tax.
A savings bond is a monetary (money-related) bond you buy from the US government for a price. Let's call it X. Whoever has it can cash it in for X, just what you paid for it, any time, but if you hold onto it, it "matures" at a certain time (many years after purchase) to be worth a much higher value.
Such a gift is considered not only a gift but an investment in a child's future.
Read up on it here:
http://www.treasurydirect.gov/
Basically it's a $50 face item that grandma paid $25 for. It can't be cased for at least a year and has a penalty for the first 5.
At 18 years, it *might* be worth $50 or $60. (Bonds bought in 1991 are not worth $64, but the interest rates have changed over the years.)