I Bonds for Kids: The Gift That Kills the Tax Break

I bonds for kids pay 4.26% on bonds issued through Oct 31, 2026, and a parent or guardian can buy up to $10,000 a year per child through a minor linked account on TreasuryDirect, but a bond registered in the kid's name can never use the education tax exclusion on its interest. That break needs an owner who was at least 24 before the issue date, so only a bond in a parent's name can qualify.

Key takeaways

I bonds issued May 1 to Oct 31, 2026 pay 4.26%: a 0.90% fixed rate that lasts the life of the bond plus a 1.67% semiannual inflation rate. A new rate posts Nov 1, 2026 (TreasuryDirect).
The kid's cap is $10,000 per calendar year, minimum $25, and it sits on top of each parent's own $10,000 (TreasuryDirect).
$1,000 a year for 18 years lands at $27,512 if 4.26% held flat the whole way, against $37,269 in an index fund at 7%. Both on $18,000 of deposits.
The education exclusion also needs a 2026 MAGI under $182,650 on a joint return, with the phase-out starting at $152,650 (Rev. Proc. 2025-32, IRS Publication 970).
Reported yearly, our stack's interest never tops $1,136 a year, under a dependent's $1,350 2026 standard deduction. Cashed all at once at 18 with no other income, it runs $952 of federal tax with parents at 12% (IRS Publication 550, Topic 553).
A grandparent's gift bond counts against the kid's $10,000 in the year it is delivered. A full $10,000 is 52.6% of the $19,000 2026 gift tax exclusion.

There is a whole genre of post calling I bonds the perfect gift for the grandkids. The pitch writes itself: the bond cannot lose value, and Grandma already knows what a savings bond is.

What those posts skip is the name on the bond. Put the kid's name on it and the federal education tax break on the interest is gone for good. Put a parent's name on the same bond and it can still qualify.

On our list of the best investment accounts for kids, I bonds are the one that cannot go down. They also lost to an index fund at 5%, 7% and 9% in our 18-year run.

How do you buy I bonds for a child?

Through a minor linked account on TreasuryDirect. A kid under 18 cannot hold an account alone, so a parent, natural guardian or the person providing chief support opens one inside their own TreasuryDirect account, using the kid's Social Security number.

The adult buys, cashes and receives gifts on the kid's behalf. The bonds belong to the kid. The adult is driving.

Paper is gone. I bonds have been electronic only since Jan 1, 2025, so the bond in the birthday card is now a login.

Fair warning about the site. TreasuryDirect looks like it has not been redesigned since the first iPhone, and the virtual keyboard on the password screen will test you... It works anyway.

How many I bonds can you buy for a child each year?

$10,000 of electronic I bonds per calendar year, counted by the kid's Social Security number, in any amount from $25 up, to the penny.

The kid's $10,000 is separate from yours. TreasuryDirect says your own limit "is in addition to the amount you can spend on buying savings bonds for a child or as gifts." 2 parents and 2 kids means 4 separate limits.

The 2 rows below that matter most for a kid are the 12-month lock and the $0 state income tax.

Series I bond rules for bonds issued May 1 to Oct 31, 2026. Source: TreasuryDirect, checked Oct 16, 2026.
Rule	What it is
Current composite rate	4.26% (fixed 0.90% + semiannual inflation 1.67%)
Next rate announcement	Nov 1, 2026
Purchase limit, electronic I bonds	$10,000 per Social Security number per calendar year
Minimum purchase	$25
Earliest cash-out	12 months after purchase
Early penalty	Last 3 months of interest if cashed before 5 years
Earns interest for	30 years
Compounding	Semiannual
Federal income tax	Yes, on the interest, deferred or reported yearly
State and local income tax	$0
Paper bonds	No new ones since Jan 1, 2025

Do I bonds for kids qualify for the education tax exclusion?

Not if the kid owns them. The exclusion lets an owner skip federal tax on savings bond interest spent on college, but IRS Publication 970 requires that owner to be at least 24 before the bond's issue date.

Your kid is 0. Or 4. Or 11.

A bond in the kid's name fails the age test the day it is issued.

Nothing fixes it later. TreasuryDirect says it plainly: "a bond registered with a child as owner will not qualify even years later when the child is ready for college."

The parent cannot claim it instead. Publication 550: a parent-bought bond in the name of a child under 24 does not qualify for the parent or the child. Nobody gets it.

Read that again. Every gift post that says to put the bond in the baby's name is describing the 1 version that can never get the break.

The version that works is boring. Same bond, a parent as owner, the kid as beneficiary. TreasuryDirect allows a child as beneficiary, never as owner or co-owner.

Who can use the education savings bond exclusion on an I bond bought for a kid in 2026. Sources: IRS Publications 970 and 550, Rev. Proc. 2025-32, TreasuryDirect, checked Oct 16, 2026.
Test	Bond owned by the parent, kid as beneficiary	Bond owned by the kid (minor linked account)
Owner 24 or older at issue date	Yes	No, and it never cures
Registration the IRS accepts	Parent, or parent and spouse, as owner	Kid as owner fails
Exclusion available	Yes, on Form 8815	$0
2026 MAGI phase-out, joint return	$152,650 to $182,650	n/a
2026 MAGI phase-out, other filers	$101,800 to $116,800	n/a
Married filing separately	Not eligible	n/a
Counts as a qualified expense	Tuition and required fees, or a contribution to a 529 or Coverdell ESA. Not room and board	n/a
Who reports the interest	The parent	The kid
Whose money it is at 18	The parent's	The kid's

On the 18-year stack we run further down, the exclusion is worth the federal tax on $9,512 of interest: $1,141 at a 12% rate, $2,093 at 22%. A parent-owned bond can keep that. A kid-owned bond cannot, no matter what the money is spent on.

2 catches on the parent side. The 2026 exclusion phases out between $152,650 and $182,650 of modified adjusted gross income on a joint return, and room and board does not count.

The useful clause is the 529 one. A parent can cash the bond, put the proceeds in the kid's 529 the same year, and the interest qualifies if the income test passes. The 529 then carries its own rules, 529 withdrawal penalty included.

Can grandparents buy I bonds for grandchildren?

Yes, as a gift. A grandparent buys the bond in her own TreasuryDirect account and delivers it to the kid's minor linked account, which only a parent, guardian or chief-support adult can open.

So the parent goes first. To deliver, Grandma needs the kid's full name, Social Security number and TreasuryDirect account number.

Until delivery the bond sits in her "gift box," outside her limit. It counts against the kid's $10,000 in the year the kid gets it.

Gift tax is a separate clock. A $10,000 I bond uses 52.6% of the 2026 gift tax exclusion of $19,000, so a grandparent can fill the kid's I bond cap and still hand over $9,000 more that year with no form. 2 grandparents are 2 exclusions.

Now the part the gift posts leave out. A delivered gift bond is in the kid's name, which puts it in the "no exclusion, ever" column of the table above.

For Grandma to get the education break herself, she would have to own the bond, pay the tuition for her own dependent and pass the income test. That is a lot of paperwork for a birthday card.

What is the I bond rate right now, and what happens on Nov 1, 2026?

4.26% for I bonds issued May 1 to Oct 31, 2026, built from a 0.90% fixed rate and a 1.67% semiannual inflation rate. On Nov 1, 2026, Treasury posts new numbers for both.

Read the fixed rate twice. It never changes, so a bond issued in October 2026 carries 0.90% above inflation for up to 30 years, whatever Nov 1 brings.

The inflation part resets every 6 months from the bond's issue month, based on CPI-U. A bond issued in October gets its first new inflation rate on April 1, 2027.

Nobody knows the Nov 1 numbers today, including Treasury. A bond issued Nov 1 or later gets the new fixed rate, higher or lower.

If inflation runs negative, the combined rate can fall below the fixed rate but not below zero. TreasuryDirect's words: "We stop at zero." The bond cannot lose nominal value.

How much do I bonds for kids grow in 18 years?

$1,000 on every birthday from birth through 17 grows to $27,512 by the 18th birthday if today's 4.26% (bonds issued through Oct 31, 2026) held the whole way. That is $18,000 in and $9,512 of interest.

Of course 4.26% will not hold for 18 years, and 7% for stocks is an average... blah blah. That is why there are 3 lines.

I bonds at 4.26% held flat

$27,512

I bonds, 0.90% + 2.5% inflation

$25,202

Index fund at 7%

$37,269

Scenario B assumes 2.5% inflation on top of the 0.90% fixed rate, a 3.41% composite. Scenario C is the 7% index fund from how much to save for your kid each month.

$1,000 on each birthday, birth through 17, held to 18. No fees, no taxes. Dadvesting calculation, Oct 16, 2026. I bond rate: TreasuryDirect, bonds issued through Oct 31, 2026.
Scenario	Rate	Deposited	Balance at 18	Growth
A. I bonds, today's rate held flat	4.26%	$18,000	$27,512	$9,512
B. I bonds, 0.90% fixed + 2.5% inflation	3.41%	$18,000	$25,202	$7,202
C. Index fund	7%	$18,000	$37,269	$19,269
C at 5%	5%	$18,000	$29,894	$11,894
C at 9%	9%	$18,000	$46,905	$28,905

The gap between A and C is $9,757. Between B and C it is $12,067. Even the 5% index fund line clears scenario A by $2,382.

That gap is the price of a bond that cannot go down.

An index fund can drop 30% the year the kid turns 17. An I bond cannot drop at all. The rows are not a ranking. They are 2 different products doing 2 different jobs.

1 more way to read scenario A, in today's money. The 4.26% has 3.34% a year of inflation baked in, and deflating $27,512 by that leaves about $15,143 of today's buying power.

That is less than the $18,000 that went in, because a $1,000 deposit in year 17 buys less than $1,000 does today. Measured the same way, the deposits were worth about $13,779, so the real gain is $1,363.

That $1,363 is the 0.90% fixed rate doing its job. The bond hands back the buying power of each deposit plus a little. Nothing more.

How are I bonds taxed for a child?

The interest owes federal income tax and no state or local income tax. If the kid owns the bond it is the kid's income, even when a parent paid for it and is named as beneficiary (IRS Publication 550).

There are 2 ways to report it, and on our model the choice is worth real money.

Deferred to 18 (method 1, the default). If he cashes them all that year, all $9,512 of interest lands in 1 tax year. With no other income, the first $1,350 is covered, the next $1,350 costs $135 at his 10%, and the rest is taxed at the parents' rate: $817 more at 12%, $952 in all, or $1,634 if the parents are at 22%.
Reported every year (method 2). Our stack earns $43 in year 1 and $1,136 in year 18. Every year sits under the $1,350 a dependent with no other income can offset with the 2026 standard deduction, so the federal tax is $0 each year.

That parents' rate is the kiddie tax in IRS Topic 553, on unearned income over $2,700. It reaches a kid under 18, an 18-year-old whose earned income does not cover over half his support, and a full-time student through 23.

Getting on method 2 takes 1 return filed for the kid that shows the interest earned to date, and no yearly return after that only to report it. Skip it and Publication 550 puts him on method 1.

The yearly route assumes no other income and no Form 8814 putting it on the parents' return. A summer job in year 17 changes the line.

What happens to a child's I bonds at 18?

They are his. Once he opens his own TreasuryDirect account, the custodian de-links the bonds into it, and TreasuryDirect says de-linking is not a taxable event for either of you.

The bonds keep their issue dates, their fixed rate and their place on the 30-year clock. If the adult keeps the minor account open past 18, the custodian is restricted from nearly everything except buying more for him.

That is the same trade every custodial account makes, the one we walk through in UGMA vs UTMA. His money, his call, at 18.

Can you cash a child's I bond early?

After 12 months, yes. Before that the money is locked.

Between 1 and 5 years, the bond gives up its last 3 months of interest. At 4.26%, the rate through Oct 31, 2026, that is about $10.65 on a $1,000 bond: about $1,043 at the 1-year mark, about $1,032 after the haircut.

The custodian cashes from inside the minor linked account, to the custodian's linked bank account. Cashing the kid's bond to pay for the kid's stuff is what the account is for. Cashing it for a new TV is the kind of thing a 17-year-old remembers.

What the math says

An I bond issued through Oct 31, 2026 pays 4.26% for at least its first 6 months, keeps 0.90% above inflation for up to 30 years, and cannot lose nominal value. $1,000 a year for 18 years lands at about $27,512 if that rate held, against $37,269 in an index fund at 7%, a $9,757 gap for the guarantee. The variable that moves the tax side is the name on the bond: the education exclusion can attach to a bond a parent owns and never to one registered to the kid.

How we ran the numbers

1 Python script, run Oct 16, 2026. Every figure on this page is what the script printed, rounded to the dollar except the $10.65 penalty and the 3.41% and 3.34% rates.

$1,000 on each birthday from birth through 17, 18 deposits, $18,000 in, every deposit held to the 18th birthday. No fees, no taxes.
Scenario A: the 4.26% composite (I bonds issued May 1 to Oct 31, 2026) held flat for 18 years. An assumption, not a forecast.
Scenario B: 0.90% fixed plus an assumed 2.5% annual inflation (1.25% semiannual), through TreasuryDirect's formula, fixed + 2 x semiannual inflation + fixed x semiannual inflation, which gives 3.41%.
I bonds compound semiannually and are held past 5 years, so no penalty in the 18-year figures. Scenario C: 7% nominal, compounded monthly, our house convention, with 5% and 9% for range.
Today's dollars: $27,512 and each $1,000 deposit deflated at the inflation implied by 4.26% (1.67% a half-year, 3.34% a year). The real gain is the difference.
Tax lines: federal only, flat 12% or 22%, assuming the interest stays inside that bracket. Kiddie tax line: the 2026 $1,350 dependent standard deduction, the next $1,350 at 10%, the parents' rate above $2,700, no other income.
Early penalty: 3 months of simple interest at 4.26% on $1,000. 1-year value: $1,000 compounded for 2 semiannual periods.

Frequently asked questions

Can you buy I bonds for a minor?

Yes. A parent, guardian or person providing chief support opens a minor linked account inside their own TreasuryDirect account, using the child's Social Security number. The child owns the bonds.

Are savings bonds still a thing for kids?

Yes, but only electronically. I bonds have been electronic only since Jan 1, 2025, through TreasuryDirect.

How many I bonds can you buy for a child each year?

$10,000 of electronic I bonds per calendar year, counted by the child's Social Security number, from $25 up. That cap is separate from each parent's own $10,000.

Can grandparents buy I bonds for grandchildren?

Yes, as a gift bought in the grandparent's own TreasuryDirect account and delivered to the child's minor linked account. A delivered gift bond is in the child's name, so it cannot use the education tax exclusion.

What is the I bond rate for November 2026?

Unknown until Treasury announces it on Nov 1, 2026. I bonds issued May 1 to Oct 31, 2026 pay 4.26%, and a bond issued before Nov 1 keeps its 0.90% fixed rate for its full 30-year life.

Do I bonds for kids qualify for the education tax exclusion?

Not when the child is the owner, because IRS Publication 970 requires the owner to be at least 24 before the issue date. A parent-owned bond with the child as beneficiary can qualify, subject to the 2026 phase-out of $152,650 to $182,650 on a joint return.

How are I bonds taxed for a child?

Federal income tax on the interest, no state or local income tax, and it is the child's income if the child owns the bond. Unearned income over $2,700 in 2026 can be taxed at the parents' rate under the kiddie tax.

Are I bonds a good investment for a child?

They do 1 job: the balance cannot fall, and it tracks inflation plus a fixed 0.90% for a bond issued by Oct 31, 2026. On $1,000 a year for 18 years, the guarantee cost $9,757 against an index fund at 7% on our numbers.

Rules current as of Oct 2026: I bond composite rate 4.26% with a 0.90% fixed rate for bonds issued May 1 to Oct 31, 2026, next rate Nov 1, 2026, $10,000 electronic I bond limit per Social Security number per year, education exclusion owner age 24+ with 2026 MAGI phase-out $152,650 to $182,650 joint and $101,800 to $116,800 other, 2026 kiddie tax threshold $2,700, 2026 gift tax exclusion $19,000. Rates and limits move, so check the date on this line before you lean on it.

Sources