When it comes to financing challenges for the average American family, saving for college looks increasingly daunting. For one thing, more kids than ever are choosing to attend two- or four-year programs after they finish high school, intensifying competition for grants, loans, and scholarships. For another, costs are rising rapidly: The College Board says costs have been increasing at an average rate of 3.4% per year beyond inflation for the past decade. So it's no surprise that many Americans feel like college costs are unaffordable.
Don't despair: Personal-finance experts say you can get a grip on saving for college by starting early and using specially designated savings accounts to earn interest over time. "The best choice [may be] Section 529 Qualified Savings Plans," Mark Kantrowitz told Ally Bank in an interview. Kantrowitz is publisher of Finaid.org, a leading source of student financial aid information. State 529 plans are named after the section of the Internal Revenue Code that governs them. "These plans offer a number of options—you can choose to put all the money in them in stock or bond funds, for example, as well as CDs and money market accounts," he explained. The accounts are opened in child's name. And because the money in them is not subject to federal (and, often, state) tax, they're one way to save for college. Kantrowitz said that about two-thirds of the families who use Section 529 Qualified Savings Plans rely on an age-based asset-allocation program, which invests in higher-risk, higher growth options when your child is very young, shifting to lower-risk products (such as money market accounts) as your child gets closer and closer to college age.
But whether you choose a designated fund, a money market account, or a plain old savings account, just save something. One key, Kantrowitz said: "Don't focus on the entire amount. So many parents get sticker shock when they start looking at prices. Take it one step at a time." Set up an automatic savings plan, even if it's only a little each week, and increase the amount when you can. "When your child is out of diapers, start using that money toward the college fund," Kantrowitz suggested. "As your daycare costs begin to go down, add that money, too." For more ideas on how to get started, go to finaid.org.
And it's worth noting that many of experts agree that a money market account makes a good option for your student's "emergency fund" during college, hopefully after the heavy work of saving with a 529 is over. With an Ally Bank Money Market Account, you earn a variable rate that's consistently among the most competitive in the country according to Bankrate.com, and you can open and fund your account with any amount. You get free standard checks and a debit card for convenient access to your money. You can use any Allpoint no-fee ATM—plus receive up to $10 reimbursement for fees charged at other ATMs nationwide each statement cycle.
Learn more about all the ways we can help you save by visiting Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.
Ally Bank, member FDIC