Grandparents' Gift Guide: Is a 529 College Plan Better Than a CD?

Savvy Grandparents Are Learning There Are Plenty of Ways to Help

June 2015

It's no secret that college costs are soaring, so it makes sense that grandparents and parents might want to help out by starting a college savings account. A 529 college plan, legally known as a “qualified tuition plan,” is sponsored by a state, state agency, or educational institution. These savings plans can be good options, but are not for everyone.

The Disadvantages of a 529 College Plan
A 529 college plan can come with considerable fees, and the Securities & Exchange Commission (SEC) warns that it's important to study those fees carefully, since they can cut into returns. Many states, in fact, have been working to lower those fees. And the SEC cautions, participating in a 529 plan generally will reduce a student's eligibility to participate in need-based financial aid.

But there are other reasons grandparents may not want to dive into a 529 plan too quickly. "Especially with young grandchildren, it may create this drumbeat that says 'College, college, college,' when college simply isn't right for every kid," says Lynne Finch, author of “The No-Cash Allowance.” And as kids get closer to college age, some may not do as well on a free ride from the grandparents as others. "I strongly believe kids have to have some skin in the game, whether it's through working or having some loans," she said. "Otherwise, many don't take it seriously." Besides, Finch adds, there are so many other ways grandparents can help enrich a grandchild's education. "Maybe it's as simple as saying, 'We'll pay for band or football camp.' Those extra educational experiences can be expensive, but are so beneficial."

Keeping Options Open: Alternatives to the 529 Plan
A more open-ended option than a 529 college plan is a certificate of deposit (CD), which provides grandparents with an added level of control. And of course, it's possible to contribute to a 529 plan intended for education as well as other savings products that can be used for anything. Ally Bank CDs offer rates that are consistently among the most competitive in the country according to rates published on MyBankTracker and we have a variety of choices that can meet a variety of financial goals:

  • High Yield CD: A CD with our highest fixed CD rate for a fixed term—anywhere from three months to five years.
  • No Penalty CDs: The Ally Bank 11-month No Penalty CD allows you to withdraw all your money, including interest earned, without any penalty, any time after the first six days following the date you fund your account.
  • Raise Your Rate CDs: With our Raise Your Rate CDs, you have the option of a one-time rate increase if our Ally 2-Year CD rate goes up; you have the option to increase your rate twice (two times) if our Ally 4-Year CD rate goes up.

Best of all, Ally Bank CDs are backed by our Ally Bank Ten Day Best Rate Guarantee, which gives you the best rate we offer for your CD term during the ten days starting with your CD open date, provided you fund your CD within that time.

Learn more by visiting or call live, 24/7 customer care at 877-247-ALLY (2559) today.

Ally Bank, member FDIC

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