Ask Money

Saving for College

Chris Farrell Aug 13, 2008

Question: My husband and I have three sons who are five years old and younger. We have saved $15,000 for them so far in an interest advantage account. After the recent bank failures, my husband and I looked into these accounts and found out that they are not FDIC insured. Our goal is to save for their college education or training. Could you please give us some suggestions on what to do with the money that would give us a good return and does not have much risk? Thank you for your time and we look forward to hearing from you. Janet, Henderson NV.

Answer: You’re right that an interest advantage account isn’t FDIC insured. It’s essentially a money market fund. I’m aware of two interest advantage funds, one run by Ford and the other by GE.

How about putting the money into a 529 plan for each of your children? Of course, a 529 plan isn’t FDIC insured either. But you have the safety of a well diversified portfolio. The investment compounds tax free. The gains are tax free too if the money is withdrawn to pay for qualified educational expenses. The investment gets favorable treatment in the financial aid formula. It’s a tough combination to beat. You can learn more about 529 plans by searching the Getting Personal questions and answers. A good resource for research is www.savingforcollege.com. The personal finance magazine Kiplinger’s (www.kiplinger.com) also has good information.

A 529 plan is my number one college savings option at the moment. For those interested in putting their money into a FDIC insured account the College Savings Bank may be worth investigating. It’s at www.collegesavings.com. The CollegeSure certificate of deposit is a variable rate CD indexed to college costs. Principal and interest are FDIC-insured to at least $100,000 per depositor.

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