Savings Bonds Go Digital: What Will Grandma Get Us Now?

NEW YORK (MainStreet) – The U.S. Treasury announced last week that it would end the sales of U.S. savings bonds after more than 75 years. As of Jan. 1, 2012, savings bonds can only be purchased through the Treasury website, a measure it claims will save taxpayers $70 million during the next five years.

The real loser here is your grandmother.

The paper bonds have always been popular with older Americans, especially those who remember when the bonds first came along to help finance the second World War. As such, getting a savings bond tucked inside a greeting card from your grandmother on your birthday or bar mitzvah is something of a rite of youth.

If your grandmother still wants to get you a savings bond, she can buy one online, then print out a “gift certificate” explaining the terms of the bond and put that in the card. But quite frankly, there are better gifts that parents and grandparents can give their children to put them on firm financial footing. Here are a few.

Stock Certificate. While savings bonds offer more nostalgia than rate of return, an old-fashioned stock certificate offers both. Sure, they’ve become rarer in recent years and are no longer required for proof of stock ownership, but some companies still offer them if you’re willing to jump through a few hoops.  Gift one of these to your grandchild as a symbolic gesture, then help them open a mutual fund with a balanced portfolio so they can learn about investing. Chances are it will prove a much better investment than a savings bond.

Credit Card. Children under 18 can’t open their own credit cards, which is probably a good thing. But it’s never too early to start learning responsible credit practices and building their own credit rating. Open a credit card and list your teen as an authorized user, being careful to set their credit limit low so they can’t screw up their (or your) credit rating too badly. They’ll be thrilled to have a credit card of their own, but just be careful not to give them too much leash or they might hang themselves.

529 Plan. Hopefully your child or grandchild is heading to college at some point. So why not do what you can to help them save for the massive tuition payments they have ahead of them? A 529 plan is a college savings account in which investments grow tax-free, and the distributions are likewise free of taxes as long as they’re used to pay college expenses. Open one of these on their behalf and they’ll thank you later when they aren’t completely buried in student loans. Of course, you can’t exactly stick one of these in a card. We’d recommend putting an iTunes gift card in there and then explaining the real gift while you have their attention. It will be more effective than printing out the relevant section of the tax code. Trust us.