Personal finance

Saving for Your Kids' College Education: 529 Plans, CD Rates, Daily Savings, etc.

Saving for Your KidsWe already live in a world in which having a four year degree is no longer considered "optional." Even entry level and retail jobs are requiring four-year degrees now. It isn't out of the realm of possibility to imagine that by the time your kids are grown, Master's degrees will be seen in the same light that we now hold high school diplomas.

Unfortunately, this doesn't mean that the cost of education is on the decline. On the contrary! Educational costs—even for public state schools—are on the rise at an alarming rate. This means that you need to start saving for those costs now.

Remember: putting even $10-$20 a week into the account can be helpful! But what if you want to do more?

Finding the Money

Finding the money for your kids' educational costs is difficult, especially if you're already trying to pay for private education while they are still in the K-12 age range. Still, with some finesse there isn't any reason you shouldn't be able to contribute at least a little something to your kids' educational accounts each month. Here are some places where money might be hiding:

Credit Card Payments: Obviously you need to pay your credit card bills. Nobody is suggesting otherwise. But can you afford to take even 10% of what you're paying toward each card and tuck that away in a college savings fund without dipping below the minimum amount due every month?

If not, that's okay! Just keep making your payments on time every month. Then, as you pay off each account, take 30% of what you were paying and tuck it away in the college fund. 30% can go into a retirement account. The remaining 40% should be redistributed against your remaining debts.

Reducing Household Expenses: shop at thrift stores and yard sales instead of buying clothes and other things brand new. Make more food from scratch. Reduce your energy costs. Use the library instead of buying books and DVDs. Take public transportation or ride bicycles instead of driving everywhere. Turn yourselves into a one car family. You'd be surprised at how much you can save around the house if you really look.

Turning that Savings into More Savings

Straight saving is an excellent strategy and it is one that you should adopt right away. It should not, however, be all that you do. With some savvy investing, you can turn your existing savings into even more savings. Here are a couple of ways to do that:


Certificates of deposit are high interest savings accounts. The interest is higher on these accounts because they come with some pretty strict requirements. Most require a bigger deposit than a traditional savings account. They also require that you leave the account alone for a pre-determined period of time.

Current CD rates are somewhere around .79% on 5 year CDs, but there are some companies, like Discover and a few others that offer higher rates to their customers (which is why it's important to shop around). You can learn about Discover Bank's current CD rates by visiting their site.

If we go off of current rates, a 5-year CD with a deposit of $2,500 and a compounding interest rate of 0.79%, will be worth $2,600.32 at the end of its term. If you leave that money alone for ten years, the CD will be worth $2704.62. Obviously the more you deposit, the more money you'll earn.

You can have as many CDs in rotation as you like. A lot of people will allow a CD to mature and then reinvest it and the interest they've earned immediately into another CD with a higher interest rate.

529 Plans

A 529 Plan is a savings plan for parents and students who want to be able to save money for educational purposes without having that money subjected to tax penalties by the government. There are a lot of different types of 529 Plans out there to choose from.

What makes these plans an important and worthy option for your money is that they can be used to save thousands of dollars on tuition when your kids are ready to go to school. Why? Because the some 529 plans are "Prepaid Tuition" plans. They qualify you for whatever the school's tuition rates were when you opened the account (as opposed to when you want to withdraw the funds). It can help you save tens of thousands of dollars in inflation costs!

It's also a good idea to get your kids invested in the idea of saving for college themselves. Encourage them to save at least 20-30% of any allowance money they earn when they are younger and at least 50% of whatever wages they earn for after school jobs and work when they are older.

Have you come up with a fantastic savings plan for your kids' educations? Let us know!

If you have any questions, please ask below!