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

Savvy Grandparents Are Learning There Are Plenty of Ways to Help

February 2013

It's no secret that college costs are soaring. According to the College Board, tuition and fees at public universities rose 5.6 percent per year in the past decade, and 28 percent at private colleges. So it makes sense that sometimes grandparents and parents might want to help out by starting a college savings account.

Often, the best answer may be a 529 college plan. Ally Bank doesn't offer this account, but we do offer ways to supplement your savings activity and overcome the disadvantages of a 529 college plan.

The Disadvantages

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 others reason grandparents may not want to dive into a 529 plan too quickly — reasons more important than dollars and cents:

"Especially with young grandchildren, it may create this drumbeat that says 'College, college, college,' when college simply isn't right for every kid," said Lynne Finch, author of The No-Cash Allowance. In a recent interview with Ally Bank, she added, "Some are more suited for trade school, or the military."

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 added, 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 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 instruments that can be used for anything. The two needn't be mutually exclusive.

Ally Bank CD rates are consistently among the most competitive in the country according to rates published on MyBankTracker and offer you a variety of choices that can meet any parental — or grandparental — objective:

  • High Yield CDs: fixed rates with a variety of terms from three months to five years.
  • Raise Your Rate CDs: start with a great yield on a 2- or 4-year CD, and if our rates go up during your term, you have the one-time option to raise your rate on the 2-year CD, and twice on the 4-year CD.
  • No Penalty CDs: an 11-month CD with our competitive rate that gives you the option to withdraw all your money, including interest earned, without any penalties, anytime after the first six days following the date you fund your account.
  • IRA CDs: Ally Bank High Yield and Raise Your Rate CDs that also come with the benefits of an IRA.

Best of all, Ally Bank CDs are back by our Ten Day Best Rate Guarantee: When you fund your CD within 10 days of opening or renewing your CD, you automatically get the best rate we offer during those 10 days starting with your open date (or your maturity date if renewing).

Learn more about Ally Bank at or call live, 24/7 customer care at 877-247-ALLY (2559).

Related articles: