How Gift Bonds Work

by Wanda Thibodeaux, studioD

When people want to invest in someone else's financial future, one option is the bond. A bond is a note an organization gives in recognition you have provided some funds. These investments often are guaranteed, meaning the issuer has a way of making sure the lender who buys the bond gets his money back. This makes them a very secure investment good for gifting. Bonds purchased for someone else are known as gift bonds.

Bond Basics

A bond of any kind is essentially an IOU for an organization. Organizations issue bonds when they need capital to fund operations or projects and do not want to take out a traditional loan. In return for the money the organization receives through the purchase of a bond, the organization pays the bond buyer back plus interest. Buyers must wait a certain amount of time before they cash in their bonds. If they do not wait, they incur a penalty and the value of the bonds decrease.


Normally, when you purchase a bond, the issuing organization will put your name on the bond. This identifies you as the bond owner. The organization also asks for your Social Security Number or Taxpayer Identification Number for tracking purposes in case the bond is ever lost or stolen. You provide this information to the issuing organization on a simple purchase form, which you can fill out as a hard copy or online, depending on the organization. With a gift bond, the process is essentially the same, but instead of your name and SSN or TIN, you provide the name and SSN or TIN of the person to whom you are giving the bond as a gift. If you don't know the SSN or TIN of the recipient, you can use yours, as these numbers are just for tracking. You may buy government bonds electronically on the U.S. Department of Treasury's website. If you use this option, the Treasury holds your electronic bond in the "Gift Box" in your online account until you are ready to transfer it. Your recipient must also hold an online account with the Treasury in order for you to transfer the electronic bond.


Depending on which organization issues the bond, you often can get certificates that accompany the gift bond. These certificates highlight the reason why the buyer gifted the bond, as well as who the buyer was. These certificates are not required, but they are a way for the buyer to clarify for the recipient what the bond commemorates or for what it is intended.


Because a gift bond lists the recipient as the owner, the recipient may cash the bond at its maturity just as any other bond owner does. This is a simple process that requires presenting the bond along with identification to a representative from a financial institution such as a bank -- any branch of the Federal Reserve will cash a government-issued bond. As a recipient, you must endorse the bond to cash it. Once you do this, you may deposit the funds into an account of your choice or simply ask the institution representative for cash. If you need to get money out of a bond before it matures, you may sell it through authorized bond sellers. The United States Treasury allows you to do this online via its website.

About the Author

Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website,, which functions globally and welcomes new clients.

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