How do savings bonds work? Is it a good investment for the future? Is it a good b-day gift for a 2 yr. old?

Used to be HH bonds, Now EE and II bonds.

You pay 50 for 100 at maturity: or 100 for 200 at maturity: or 250 for 500 at maturity: or 500 for 1,000 at maturity. Maturity generally being 30 years. With the II bonds, the interest re-sets with inflation.

They are exempt from state and local taxes, and if used for education, also exempt from federal taxes.

The return is not great. Currently in the 5% range. So longer term, one might consider a Good mutual fund, like Investment Co. of America (American Funds). However, they are great for gifting. You'll need the child's social security number.

This is how I sent my 3 children to college. With EE bonds, through a payroll deduction plan.

Go to Google and type in EE bonds and you'll get many pages of great information. Good luck!

I'm not exactly sure how they work - but I think if you buy a $50 one - in 7 years it's worth $100 - not really sure.

My son is 2 and has gotten many savings bonds - I think they are a great idea!! I would rather this than another toy - how many toys can a 2 year old. So, yes, I think they are a great b-day gift idea.

Savings bonds used to be a good investment during WWII. They still can be if you get enough of them.
A savings bond is a certificate that you purchase from the government for a certain amount. The government uses that money to help pay debts while it matures. Say you pay $10 (not sure of the purchase price, just an example) for a $50 savings bond. The bond will be worth $50 dollars after it matures, which is 30 years right now. So during that 30 years, the government is really paying you for borrowing the $10. I worked at Boeing for a few years and bought about 20 of them. Don't remember how much I paid, but I think it was only $10 a piece. They are all $100 bonds. So for a $200 dollar investment, they will be worth $3000.
I hope that helps. And yes, they are a great bday present. My son got some for his bday.

The other answerers for this question so far have given you good information. The only thing I would add is that the difference between mid-term and long-term interest rates is not very much right now...so if you have an option, choose the shorter bond maturity instead of the longer one.

It isn't the greatest "investment" in the world, but it is a GREAT gift for a child as the interest if cashed for paying for higher education is not taxed.

Also, I see all my cousins kids get so many toys they never play with or just destroy, I'd rather not throw my $ away like that. SO I invest in their future

I would also add that the current terms of the I series bonds are better than the EE series, which Congress recently monkeyed with to limit the cost to the government.

after taxes and inflation they pay basiclly nothing, you'd dp better with a gold coin, at least you could put it on display.