Save for College
Traditionally Safe Long Term Investments to Start Saving for College
Even with the availability of student loans or the prospects of achieving a degree online these days, paying for a college education can be a frightening proposition. But being able to come out the other side of a degree program with little or no debt on your plate may make starting to save for college early and safely, an attractive strategy. A
guaranteed return upon your long term investments for college may be a better road to take than throwing your money into a riskier investment in which you might lose money at the last minute.
Savings Bonds
US savings bonds can be a wonderfully safe way to save over the long term for college. Series EE bonds have a fixed rate associated with them at purchase and Series I bonds have a fixed rate paired with a rate based upon inflation, and both types are typically available for purchase at local banks.
Both types of bonds are backed by the United States Government, will accumulate interest for a total of 30-years, are exempt from state and local taxes, and may be exempt from federal tax as well if used for certain educational expenses. EE bonds may be the more stable earners of the two, as I bond interest can fluctuate based upon the rate of inflation, which in slower economic periods may not increase or may even become deflationary. Neither bond will actually lose you money though unless you decide to cash the bond within five years of purchase, which would result in a 3-month interest penalty.
For more information about these bonds you can visit the US Treasury website at: http://www.treasurydirect.gov. To learn more about the educational tax benefits of such bonds you can visit: http://www.treasurydirect.gov/indiv/planning/plan_education.htm
Certificates of Deposit
Probably a more straight forward, yet safe long term investment option for college planning is the certificate of deposit, also known as a CD. The rates of return for these investment vehicles are dependant upon the length of time the certificate is held as well as the amount of money invested. Typically, the longer the term of investment and the more money invested, the better the rate will be.
You can purchase CDs at your local bank, credit union, or nowadays even search for higher rate CDs online. It’s important to make sure that whatever financial institution you choose to invest with though, is reputable and insured with the FDIC (Federal Deposit Insurance Corporation). Also, be aware that if you decide to withdraw your money from a CD before its maturity date, there will likely be an associated monetary penalty for doing so.
High Interest Savings
Probably the easiest investment option on this list is the high interest savings account. This option is safe, available at most banks, and the funds will likely be readily available should you need them. Again, it is important to note that for the safety of your investment, you should look for a financial institution that is FDIC insured.
With a high interest savings account you may have easier access to your money and without penalties. However, it is important to bear in mind that there may be a minimum balance to maintain in order to sustain a higher interest rate, and should your balance dip below that level your rate might drop, and you could even be hit with a penalty or fee.
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Yes, saving for college is really, really important. Excellent suggestions. What about College Funds or College Plans? Are they safer or riskier option?
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And a lot of states are offering state savings plans. One of my daughter’s friends had used a state plan and wound up getting a scholarship. Is that money then available to the family for whatever they want?
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College is so important but at the same time a huge amount of money to invest. Planning for it early on is the best option for sure. Great article.
All the best ?,
Eren
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i’m really thankful i had parents that helped me fund my college education–and i can’t imagine paying for it now or in the future when it’s just gonna get even pricier! i never would’ve considered bonds; i’ve heard mized things about 529 plans, too. the other readers said it right: start early! thanks karla =)
All of those options are great for someone who is close to needing to pay for college shortly because market fluctuations have been erasing the growth in traditional college savings plans. Currently the interest rates being paid on savings bonds, CDs, and high interest savings are hard to get excited about but the peace of mind of knowing that your college funds are secure is hard for some parents to pass up.
Roth IRAs can also be used for parents with at least five years before college.
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