I posted last week about instability in the state of Texas’ pre-paid tuition plan. But it isn’t only Texans who have to worry about tax-deferred savings plans for college.
As last year’s financial crash has proven, planning on high returns from market-invested college funds is far from a sure thing.
With the volatile market continuing to batter college savings plans, a number of savings & loans have begun rolling out incentives to save the “old fashioned way,” according to USA Today.
The article points to a number of examples, including a $1,000 bonus that Citizens Bank is offering to those who open a college savings account before their child turns six. It’s a sweet deal: If customers deposit at least $25 per month every year, then the $1,000 bonus, plus interest, will be paid when the child turns 18.
While savings accounts are generally not the best place to save for college — there just isn’t enough compounding interest to get any leverage on the skyrocketing costs of tuition — this particular deal is worth a closer look.
Let’s say you open the account right before your child turns 6. That leaves you 13 years — or 156 months — to deposit $25/month. If you were to stick to that minimum, you would put aside a total of $3900 over those 13 years. On which you would earn $1,000 — a whopping 25.65% interest rate! Pretty impressive. (Of course, if you deposit more than $25 per month, or if start saving earlier in your child’s life, then the returns diminish.)
If you are interested in getting in on this deal, you will need to live in one of the nine states that the bank has branches: Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Here’s more information for those of you living in the Northeast. And for the rest of you, come learn more about the best ways to save for college from my series comparing the various tax-advantaged college savings vehicles.