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Saving for Your Child's College

Saving for Your Child's College | CashCourse: Your Real-Life Money Guide

With college costs rising faster than the inflation rate, building a nest egg for your child’s education is a smart idea. Use the information below to help generate a strategy.

Make a plan

It is impossible to know what kind of school your child will attend, but the important thing is to understand what you will be on the hook for and start saving today, even if it is only a small amount.

Compound interest can be your friend. Use this calculator to illustrate what a small amount of monthly savings might grow to if you start today.

Research future college costs of potential schools. Make sure to look at community colleges, technical schools, and private universities to cover your bases.

Decide the percent of college you can cover and what you’d like your child to cover. Few parents pay the entire cost because scholarships, loans, and financial aid can ease the overall burden.

College savings plans

Your child's age will have an impact on how you save. You might use the following methods for each of your child's life stages.

Elementary school: Riskier, long-term investments that yield higher returns such as stocks and mutual funds.

Middle school: Less risky, but lower return investments, such as short- and intermediate-term bonds and interest-earning money market mutual funds.

Graduation from high school: Low-risk investments.

More commonly there are several investment and savings accounts meant specifically for families saving for higher education.

529 College Savings Account: These accounts let the government do all the work. The state makes investments and automatically decreases the risk as your child gets closer to college. View your state's specific plan. Contact a broker to set up an account.

529 Prepaid Tuition Account: If you know you want your child to go to a certain state or municipal university, this plan allows you to purchase tuition credits at that school at today's prices. That means you will pay inflation-free college tuition for your child.

Coverdell Account: A Coverdell Savings Account (also called an Education Savings Account or ESA) takes care of the investing for you, putting savings up to $2,000 a year in stocks, bonds, and mutual funds.

Trusts, money market accounts, Roth IRAs and U.S. Savings Bonds also can be useful for saving. 

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