At 70 He’ll Buy I Bonds for Each of His Four Grandkids. Every Child Gets Their Own Purchase Limit, and the Gifts Can Wait in His Account Until He Delivers Them
Buying I bonds for grandkids sounds straightforward until you realize whose name goes on the bond changes the tax bill, the purchase limits, and even Medicare premiums decades later.
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Harold is 70, has four grandkids, and he’s done buying toys that end up in the donation bin by spring. This year he wants each grandchild to get something that’s still growing when they leave for college or move into a first apartment. He’ll buy Series I savings bonds through TreasuryDirect and put a separate set in each child’s name.
Many grandparents have the same idea, and the timing works in their favor right now. The Treasury reset I bond rates at the end of October, and CNBC pointed out this week that the new rate comes with trade-offs buyers should understand first. Here’s how it plays out for a grandparent.
Why the 1.40% Fixed Rate Is the Number That Lasts
I bonds issued from November 1, 2026 to April 30, 2027 pay 5.51%. That rate comes in two pieces. The fixed rate, 1.40%, stays with the bond for its entire life. The inflation piece resets every six months, so the total rate will rise and fall over time.
Focus on the fixed rate. Bonds issued from May through October 2026 got a fixed rate of just 0.9%, so this lot starts from a higher floor. For comparison, the average 12-month bank CD pays 1.76%. Interest compounds every six months, and the bond keeps earning for 30 years. A grandchild can cash it in after 12 months. Cashing in before five years means giving up the last three months of interest.
Each Grandchild Gets a Separate $10,000 Limit
Purchase limits are tracked by the bond owner’s Social Security number. Each person can buy up to $10,000 in electronic I bonds per calendar year, and gift bonds count toward the recipient’s limit. That gives each of Harold’s four grandkids $10,000 of room every year, and his own limit stays open.
Paper bonds aren’t an option anymore. Since January 1, 2025, I bonds are sold only electronically, which ended the option of taking part of a tax refund as paper bonds. Gift tax also shouldn’t be an issue. The annual gift exclusion for 2026 is $19,000 per person, and a gift of a few thousand dollars per grandchild falls well under that.
Putting the Bond in the Grandchild’s Name Wins
Whose name goes on the bond determines everything else. Federal law lets some families skip tax on bond interest used for college, but the owner must be at least 24 years old before the bond’s issue date. That rules out a bond in a child’s name for both the parent and the child.
For most grandparents, that trade is worth making. If a bond is registered only in the child’s name, the interest is the child’s income, even if you paid for the bond, and it’s generally taxed when the bond is cashed in. A teenager with little other income usually owes very little. The interest also stays off Harold’s tax return, so it can’t push him toward Medicare’s premium surcharges, which kick in above $109,000 for single filers. And it’s exempt from state and local taxes.
Keeping the bonds in Harold’s own name is the weaker choice. He would have to pay the qualified education expenses himself in the year he cashes the bonds, the break phases out at higher incomes, and the purchases would use up his own limit.
What One $5,000 Gift Could Grow to by 18
Say the youngest grandchild is 2 and gets a $5,000 bond that sits for 16 years. If the 5.51% rate held for that whole stretch, the bond would grow to roughly $11,900. A more realistic guess pairs the 1.40% fixed rate with inflation averaging 2.5% a year. That works out to about a 3.92% rate and a value of roughly $9,300. Doing the same for all four grandkids would cost $20,000.
Buy Now and Deliver Later With the Gift Box
Here’s the handy part. A gift bond waits in a special “gift box” in Harold’s account until he sends it. The gift counts toward the recipient’s limit in the year they receive it, and it has to sit for at least 5 business days before delivery.
So he can buy in November to lock in the 1.40% fixed rate, then deliver at Christmas or on a birthday next year. To deliver, he needs each child’s full name, Social Security number, and TreasuryDirect account number. Children under 18 get an account when a parent or other adult custodian sets up a linked account.
Avoid leaving gifts in the box with no plan. Undelivered bonds are easy to forget, so set a delivery date for each one.
Open the Account Before the Holidays
Harold’s first step is opening his own TreasuryDirect account this week. Then he should ask each set of parents to open an account and a linked account for every child. Once that’s done, each purchase takes a few minutes, and the 1.40% fixed rate stays with those bonds for good.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
