Credit Loan > CD Rates > CDs as Part of a College Savings Plan

CD Education Fund

Ideally, every parent would be able to provide their child or children with sufficient money to cover those parts of their educational spending that scholarships and that part-time job advising a Senator don’t cover. The reality is that the potential cost of college is enough to send most parents to tears. With luck and planning, there are ways to mitigate this burning issue. One of these is the judicious use of certificates of deposit (CDs).

If the parents start early and are able to make consistent deposits into savings accounts, that money can soon be placed into short or long term CDs, where it will sit, safely locked away and accruing interest with minimal attention from someone who needs all their attention for potty-training. As interest compounds and the return on the investment grows, they can be stepped up to longer terms and higher interest rates.

Another advantage to this process is that the government allows a certain amount of money to be “given” to the child every year tax-free. It is best to consult with a professional before taking this step to make sure all the I’s are dotted, but done right, this can benefit both present and future financial standing. The fact that they are locked in for a certain period of time also secures the money, rather than leaving it where it might be spent.

CDs are advantageous in this kind of forward thinking savings plan because they can be guaranteed both by banks and the government. Not all institutions are FDIC insured, so this should be carefully checked. If the APR looks too good to be true, this may be the cause. CDs can have terms of up to five years, depending on the amount and institution, but they can also be purchased at much shorter terms -- one month, three months, nine months -- depending on anticipated need. Shorter term CDs have lower rates, but this is also a good way to make sure a specific amount of money will be available when needed without risking the penalty for early withdrawal.

With the costs of even in-state tuition increasing exponentially, this type of saving may require supplementing by other, higher-risk investing, but at the same time, such a plan will ensure that a certain level of funds exist regardless of how the market performs.