My grandparents bought me savings bonds when I was born. I spent the money the second it was in my grubby little mitts, which was around 16, if I recall correctly. Since then I’ve struggled with my innate tendency to burn through money like water with varying degrees of success.
Rather than giving me the money, it might have been wiser to save the bonds for college tuition. As this Bankrate story explains, interest produced by savings bonds, the I bond specifically, can be exempt from federal taxes if it is used to pay tuition or other qualified education expenses the year the bonds are redeemed.
These days parents do have other options for a safe, tax-advantaged college savings account, the 529 plan. And as Christina Couch details in this Bankrate story, Congress recently passed legislation that will allow 529 plans in all states to include CDs in their investment options.
According to the article, state 529 plans lost between 20 percent and 50 percent over the past two years which would definitely make anyone with a looming tuition bill antsy for safe and steady returns.
CDs do have some drawbacks in 529 plans, most notably, early withdrawal penalties.
For people with children, will you be investing in CDs for their college savings?
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