So far in our monthly College Savings series, we’ve talked about the pros and cons of a 529 plan and reviewed Coverdell, UTMA and UGMA Accounts. This month we’ll discuss Traditional savings, CDs and Savings Bonds.
- Safety and Insurance. Savings accounts and CDs are typically a safe bet in the name of savings, and are insured. Your ECCU savings are federally insured by the NCUA up to $250,000. Plus, increased coverage for deposits in excess of $250,000 up to a total of $500,000 provides the highest level of savings insurance available with Excess Share Insurance. Savings bonds are also federally backed.
- Accessibility. Anytime you need to access the funds in your savings account, a trip to the credit union or online account access allows you to do so. CDs are easily accessible, but be aware that penalties may be imposed for early withdrawals.
- Predictable growth. When you open a savings account or CD, you know what the annual percentage rate or yield will be from the beginning. While a traditional savings account APR may change quarterly, it typically won’t be a huge difference either way.
- Savings bonds = tax benefits. Series E and I savings bonds may be excluded from Federal income tax if used to finance education. They are also excluded from state and local tax.
Things to consider:
- Lower rates. Historically, traditional savings accounts CDs and savings bonds have lower rates than other education savings options.
- Less compounding. This is because there’s no tax deferral.
- Often counted heavier against child for financial aid. Because the value held in these types of savings vehicles are counted in the owner’s gross estate, and savings bonds must be held in the parent’s name, they may reduce the amount a child can receive in federal student aid.
Whether you have a lump sum to invest or want to add to a college savings plan monthly, I can help weigh your options and explore a variety of savings possibilities. Meetings are always free for ECCU members…schedule one today or shoot me an email with your questions.
Our next post will cover the pros and cons of Investments and Brokerage. Be sure to sign up for our weekly blog updates so you don’t miss it!