I'm trying to figure out what type of savings account to open for my soon-to-be-born child. I know that a relative is going to give us a check when baby is born, and I keep hemming and hawing about what to do with it. I'd like an account that we can add to here and there (paying off student loans and saving for a house takes precedence over baby's account so no monthly deposits)...you know, birthday money, eventually allowance, etc.
I know 529 plans are a great college savings option, but I'm not sure I want to commit all of our funds to college. I MIGHT want to use it for that, but what if my kid gets a scholarship? What if he/she wants to use it for a first car or a house down payment? And (the teacher in me cringes at this thought) what if my kid doesn't go to college? I don't like the limits on a 529 plan.
I like the idea of setting up a savings account, so that later on my child can practice/learn good saving habits and put money in the bank for either long-term savings or for an item that he/she wants to save for in the short-term. Capital One 360 has a kids account, where they can create various accounts with names, so they can save towards various goals. This seems like a good option...but the interest is only .75%, so this account wouldn't make much money at all. And if I do end up using it for college, I'll probably regret not putting it in a 529 where the money could actually grow at a decent rate.
So those of you with kids, what do you use to save for them? Even if you don't have kids, based on what I'm thinking, what would you suggest?
In Canada we have an RESP plan for saving for kids' college. The government kicks in a bonus each month (up to a certain amount). Does your 529 plan have a similar incentive?
ReplyDeleteI chose our state's 529 for the tax benefits. Our only child can use it for educational expenses here or abroad (provided it's in the list of qualified institutions). If the beneficiary decides not to go to college, the parent can transfer it to another kid. In our case, we can withdraw but there will be 10% additional federal tax on the earnings of the account owner's tax rate.
ReplyDeleteInterest rates are pretty crummy all around, so I suggest using whichever local bank you guys use. It's easier to deposit cash at a brick and mortar and once your kid is old enough, they can help deposit their money to create good savings habits.
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