Start with a savings account
If you want to start saving for college, consider opening a separate account dedicated to saving for your child’s education so you don’t dip into it for other expenses.
A savings account lets you contribute as much as you like, as often as you like. There’s no risk of losing money and you can use it at any time. Make sure that there aren’t unexpected fees that can reduce your balance and compare several options. With a savings account, you’ll earn interest, but keep in mind that these accounts may lack the growth potential of a 529 plan.
Other types of savings accounts
These accounts may offer higher interest rates than a traditional savings account.
- Goal-based savings account: This type of savings account may let you set the goals you’re saving for, arrange regular or automatic deposits, and keep track of your progress toward your goals. The account may also motivate you by offering a bonus or other reward when you hit certain milestones.
- Money market: A money market account is like a savings account, except that there’s generally a higher minimum balance. For that amount, you may get a higher interest rate than with a standard savings account. Often, the higher your balance, the higher your interest rate. You can generally withdraw money from the account, usually by check, but there’s often a monthly limit to the number of transactions you can make.
- Certificate of deposit (CD): A CD may let you deposit a minimum amount of money for a set period of time—ranging from several months to several years. Typically, the longer the duration of a CD, the higher interest rate you can get. If you’re saving for the long-term and won’t need to touch the savings, a CD will often offer a higher interest rate than a traditional savings account. If you have to withdraw the money before the CD’s maturity, however, you may pay a penalty, usually a percentage of the interest that it’s earned.
Benefits of savings accounts
- They’re easy to open in person or online.
- They’re generally FDIC-insured.
- There aren’t many restrictions on withdrawals; you can take your money out at any time and for any reason (except with a certificate of deposit).
Considerations of savings accounts
- Low interest rates mean your money doesn’t have the potential to grow as much as with other college savings methods.
- They generally don’t offer tax breaks.
- You should be aware of fees or restrictions.