11 Best Ways to Save for Your Kids’ College

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The cost of attending college continues to climb, making it more challenging for young adults to pursue a college education. Between 2010 and 2020, the cost of tuition at public four-year colleges and universities increased 31.4%, according to the Education Data Initiative. When you factor in books, supplies, and daily living expenses, the Education Data Initiative found the average cost to attend college as an undergraduate is $36,436 per year.

Now is the time to start saving if you plan to help cover all or a portion of your kids' college education. And the earlier you start saving, the more time you have to sock away money and for your financial investment to grow.

There are several ways to save for a college education. The options may depend on your financial situation, where you live, or where your child plans to attend college. Here's a look at the 11 best ways to save for your kids' college.

529 Savings Plan

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A 529 savings plan is one of the most popular options among parents to save for a child's college education. A 529 savings plan is a tax-advantaged savings plan sponsored by states, state agencies, or authorized educational institutions. Some financial advisors also sell 529 plans, which may include an additional fee.

The primary benefit of 529 savings plans is that money kept in the account grows tax-free. You can also withdraw funds tax-free when they're used to cover qualifying educational expenses. While designed to cover college expenses, 529 savings plan funds can also be used to pay for K-12 tuition. 

A 529 savings plan has some limitations. If your child doesn't attend college, there are few options for using the funds without additional tax penalties, such as rolling it into a Roth (with limits).

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529 Prepaid Tuition Plan

Another type of 529 plan is a prepaid tuition plan. These plans are available through select states and allow you to prepay for your child's college tuition at current rates. Typically, you must be a state resident to qualify for its plan.

Prepaid tuition plan guidelines and restrictions vary between states. Generally, these funds only apply to tuition costs and can't be used for room and board and other college expenses.

Prepaid tuition plans are best for tuition and eligible in-state colleges and universities. Most of these plans allow you to use funds for out-of-state tuition, but the value may be less.

UGMA/UTMA Account

Another option for parents is a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account. These accounts are custodial brokerage accounts set up on behalf of a minor child, who is the account owner. UGMA and UTMA accounts allow you to invest in stocks, bonds, ETFs, mutual funds, and other select investments. Accounts are controlled by the custodian, typically a parent or guardian, until the child is no longer considered a minor, according to the state.

UGMA and UTMA accounts do not offer tax benefits. Any income, gains, or losses on the account are reported on the child's income tax return. Also, they're considered a student asset on the FAFSA, which could reduce their financial aid package.

Roth IRA

Traditionally, a Roth IRA is used for retirement, but you can use Roth IRA funds for other purposes.  In most cases, though, you shouldn't use retirement funds to cover college expenses. Instead, you could open a Roth IRA for your child. One drawback to this method is that they must have earned income to be eligible for this account type, which is a difficult requirement to meet if you want to start saving while your kids are young.

Roth IRAs carry a 10% early withdrawal penalty on withdrawals made before age 59 ½, but the penalty is waived when used toward higher education expenses. They also don't count as an asset on the FAFSA.

Coverdell Education Savings Account

Coverdell Education Savings Accounts (ESAs) are another option to pay for college, but you must fall below the maximum income limit to qualify for an account. A Coverdell ESA is a trust or custodial account available to pay for qualifying educational expenses of your child by making them the designated beneficiary.

The account has an annual contribution limit of $2,000 until the beneficiary reaches age 18 (excluding children with special needs), so it may not be a great option if you wish to contribute beyond that limit.

Mutual Funds

It's not as common, but some people use mutual funds to save for their child's college expenses. These diversified investments are available through brokerage firms and some banks and allow you to invest in stocks, bonds, and other securities. Plus, you can spend the money as you wish, including higher education costs. Mutual funds may come with broker fees, and any profits earned carry tax implications.

U.S. Savings Bonds

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U.S. savings bonds are available through the U.S. Department of the Treasury. They represent one of the safest investments because the U.S. government fully backs them. Paper bonds were discontinued in 2012, but you can purchase U.S. savings bonds online. There are two series of savings bonds available, and consumers can purchase up to $10,000 worth in each series annually.

With U.S. savings bonds, you don't pay state or local taxes on interest earned, and you can defer payment on federal taxes until the bond matures or you cash in the bond.

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Traditional Savings Account

Instead of an investment vehicle, you could use a traditional savings account to save for college. Unfortunately, most brick-and-mortar banks offer meager interest rates on savings accounts, so it's unlikely that interest earnings would keep up with inflation while you save for your child's college education.

High-Yield Savings Account

Online banks offer high-yield savings accounts with highly competitive APYs of 4.75% or higher. Generally, HYSAs feature low or no monthly service fees. High-yield savings accounts may not earn as high of a return as 529 plans and other investment vehicles, but they carry fewer restrictions than college plans and investment accounts.

Recommended High-Yield Savings Accounts

UFB Direct Secure Savings Account

Open Account

at UFB

• Our Rating 5/5 How our ratings work Read the review
• APY5.25% More Info

  UFB Direct breaks balances into five tiers, but, currently, there is only one interest rate.

• Minimum
  Deposit RequiredN/A
• Intro Bonus N/A

The UFB Direct Secure Savings Account has one of the highest interest rates we’ve seen for a high-yield savings account at up to 5.25% APY. Plus, there are no monthly fees and no minimum balance to open.

• Overview
• Pros & Cons

Overview

With one of the strongest high-yield savings interest rates on the market, as well as no monthly fees or minimum opening deposit, UFB Direct’s Secure Savings Account is an extremely attractive package.

Read the review

Pros

• Strong interest rate
• No maintenance fees or minimum monthly balances
• Free complimentary ATM card
• Mobile app and SMS banking

Cons

• No signup bonus
• No associated checking account

CIT Bank Platinum Savings Account

Open Account

Member FDIC.

• Our Rating 4.5/5 How our ratings work Read the review
• APY5.05% More Info

  Earn 5.05% APY on balances over $5,000. Balances of less than $5,000 earn 0.25% APY. Annual Percentage Yield is accurate as of July 27, 2023. Interest rates for the Platinum Savings account are variable and subject to change at any time without notice.

• Minimum
  Deposit Required$100
• Intro Bonus N/A

The CIT Bank Platinum Savings account offers one of the top APYs on the market right now, and CIT's flexible transfer options make it easy to access your money. So long as you're able to consistently maintain an account balance of $5,000 (the minimum amount required to earn this account's top APY) you'll likely find a lot of value in this account.

• Overview
• Pros & Cons

Overview

With the CIT Bank Platinum Savings Account, customers earn 5.05% APY on balances over $5,000. However, for accounts with less than $5,000, the APY falls to 0.25%. This account features a minimum opening deposit requirement of $100 and does not charge monthly maintenance fees. Accountholders also get free transfers to and from connected bank accounts, which even extends to non-CIT accounts.

Read the review

Pros

• Strong APY for balances over $5,000
• No monthly service fee
• Unlimited withdrawals (uncommon perk of savings accounts)
• Free electronic bank transfers to checking accounts (even if it isn't a CIT checking account)

Cons

• APY on lower balances is unimpressive
• No fee-free ATM network
• Minimum opening deposit required
• No physical branches

CIT Bank Savings Connect Account

Open Account

Member FDIC.

• Our Rating 4.5/5 How our ratings work Read the review
• APY4.65% More Info

  Annual Percentage Yield is accurate as of July 27, 2023. Interest rates for the Savings Connect account are variable and subject to change at any time without notice.

• Minimum
  Deposit Required$100
• Intro Bonus N/A

CIT Bank's Savings Connect account is one of our top picks for high-yield savings accounts. Featuring a competitive flat APY on all balances, it can go head-to-head with most of the top savings accounts available. What's more, you don't have to do anything special to earn this high interest rate; many similar accounts (including some offered by CIT) only offer their highest interest rates to customers who complete certain requirements.

• Overview
• Pros & Cons

Overview

With extremely competitive interest rates and a host of convenient features, the CIT Bank Savings Connect account can go head-to-head with nearly any other savings account in the U.S.

Read the review

Pros

• Competitive APY
• No monthly service fee
• Free electronic bank transfers to checking accounts (even if it isn't a CIT checking account)

Cons

• No fee-free ATM network
• Minimum opening deposit required

Money Market Account

Like high-yield savings accounts, money market accounts have fewer restrictions than college plans. These hybrid bank accounts combine the saving potential of an HYSA with the conveniences of a checking account, like a debit card or check-writing privileges in many cases.

Recommended Money Market Account

UFB Direct Secure Money Market Account

Open Account

at UFB

• Our Rating 4/5 How our ratings work Read the review
• APY5.25% More Info

  UFB Direct breaks balances into five tiers, but, currently, there is only one interest rate.

• Minimum
  Deposit RequiredN/A
• Intro Bonus N/A

The UFB Direct Secure Money Market account offers up to 5.25% APY on balances, which is competitive with the very best money market accounts. This account also doesn't feature a minimum opening balance requirement, which makes it a viable option regardless of how often you need to move your money around.

• Overview
• Pros & Cons

Overview

With no minimum opening balance requirement, UFB Direct’s Secure Money Market Account is an extremely attractive option. It offers high interest rates on all balance tiers, as well as handy features like limited check-writing privileges and debit card access.

Read the review

Pros

• Option to waive monthly maintenance fee
• Competitive interest rate
• Free debit card
• Limited check-writing privileges

Cons

• Monthly maintenance fee applied for low account balances
• No associated checking account offered

CD Ladder

CD ladders can help you save for your child's college while keeping some flexibility. With a CD ladder, you open several certificates of deposit, or CDs, with varying term lengths. A CD ladder allows you to continuously earn a higher interest rate without locking all of your money up in one account for a long period of time.

As your CDs mature, you can access the funds as needed or roll them into a new CD account to continue the ladder and earn more interest.

Recommended CDs

CIT Bank Term Certificates of Deposit

Open CD

Member FDIC

• Our Rating 3.5/5 How our ratings work Read the review
• Minimum
  Deposit Required$1,000
• 1 Year APY0.30% More Info

  Annual Percentage Yield is accurate as of April 2, 2024. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

• 3 Year APY0.40% More Info

  Annual Percentage Yield is accurate as of April 2, 2024. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

• 13-Month APY3.50% More Info

  Annual Percentage Yield is accurate as of April 2, 2024. Interest rates for CIT Bank's term CDs are variable and subject to change at any time without notice

Many banks that offer CDs require customers to commit to lengthy terms of several years or more in order to earn the highest interest rates available. However, with CIT Bank's term CDs, the opposite is true. To get the best rates at CIT, you'll need to open one of its shorter-term CDs, such as its 13-month CD that pays 3.50% APY. If you want an easy way to save more money without having to wait years, CIT Bank's term CDs are a solid option.

• Overview
• Pros & Cons

Overview

If you’re looking for a dependable way to earn interest on your money in the short term, CIT Bank’s certificates of deposits may be an excellent choice for you. However, those looking to open a long-term CD may be better off looking elsewhere.

Read the review

Pros

• Strong rates for 13- and 18-month terms
• FDIC insured

Cons

• Rates for longer terms unimpressive

Synchrony Bank Certificates of Deposit

Open CD

at Synchrony

• Our Rating 5/5 How our ratings work Read the review
• Minimum
  Deposit Required$0
• 1 Year APY4.80%
• 3 Year APY4.15%
• 6 Months APY5.15%

Synchrony Bank offers some of the most flexible CD options currently available. With terms ranging from three months to five years, as well as a Bump-Up CD and No-Penalty CD option, there's likely a certificate of deposit in Synchrony's roster that lines up with your needs. Additionally, none of Synchrony's CDs require a minimum opening balance, which is remarkably rare (many of the best CD rates require a minimum deposit of $1,000 or more). Across the board, Synchrony offers higher rates than most traditional banks, and some even outpace the best online banks' rates. All this makes Synchrony CDs an easy recommendation.

• Overview
• Pros & Cons

Overview

Synchrony Bank offers CD terms ranging from 3 months to 60 months, and across the board its rates are some of the highest currently available. While it only offers one No-Penalty CD and one Bump-Up CD, both are competitive in their respective areas. Another major perk of Synchrony CDs is the lack of a minimum opening deposit requirement; many CDs with comparable rates require you to commit to $1,000 or more, which make Synchrony’s CDs remarkably accessible by comparison.

Read the review

Pros

• Strong interest rates on some term lengths
• No minimum deposit requirement
• Strong bump-up CD option

Cons

• Only offers terms of up to 60 months
• No-penalty CD rate is very low

Marcus by Goldman Sachs High-Yield Certificates of Deposit

Open CD

at Marcus by Goldman Sachs

• Our Rating 5/5 How our ratings work Read the review
• Minimum
  Deposit Required$500
• 1 Year APY4.90%
• 3 Year APY4.15%

Marcus by Goldman Sachs offers some of the strongest CD rates currently available, as well as an impressive array of term lengths. With maturities ranging from six months to six years, as well as three no-penalty options, most people should be able to find a CD that works for their individual needs. Marcus CDs also feature a relatively low minimum opening deposit of $500, and once funded, new CDs are backed by a 10-Day Rate Guarantee.

• Overview
• Pros & Cons

Overview

Marcus by Goldman Sachs offers competitive CD rates on term lengths ranging from six months to six years. Additionally, Marcus offers several no-penalty CDs that allow flexible access to your money without the worry of early withdrawal penalties. The $500 minimum opening deposit is lower than what many of Marcus’ competitors require.

One of Marcus’ standout features is its 10-Day CD Rate Guarantee. As long as you deposit the minimum required amount within 10 days of account opening, you’re entitled to the highest published rate during that period.

Read the review Read More

Pros

• Strong interest rates
• New deposits backed by 10-Day CD Rate Guarantee

Cons

• Minimum opening deposit required

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CD Ladders Are an Incredible Savings Strategy, Here’s How to Build One

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Bottom Line

Attending college requires a significant financial burden that most young adults can't afford on their own, even if they take out student loans. Several options are available for parents and guardians who want to help their children pay for college. Some options are better than others and may allow you to contribute or earn more than others.

The earlier you start, the better, so you can take advantage of compound interest, but you can save for college regardless of your child's age. Consider your financial situation and your child's need to find the best fit.