The Pu Pu Platter of College Savings Vehicles
There are more college savings vehicles out there than there are fantastical (or disturbing, depending on your perspective) Lady Gaga videos. Each vehicle comes with its own set of rules, risk level, rate of return, tax ramifications, and each vehicle will factor into your future financial aid package differently. Here is a breakdown of the major vehicles.
Savings and Checking Accounts
Among the college finance vehicles available, checking and savings accounts are about as useful as a crappy prom date. Unfortunately one in every four families saves for college using one of these yucky vehicles.There are three major reasons why you should avoid checking and savings accounts like the freshman fifteen:
#1: The returns you'll get on the account will be laughably low. With most savings account interest rates at or below 1 percent, storing your money here is basically the same as stuffing it under your mattress.
#2: You are not going to get any tax benefits from those accounts.
#3: College savings stored in a checking or savings account will heavily subtract from your future financial aid package. On top of earning squat in interest on your account, savings and checking accounts can actually cost you free college dollars. For every dollar stored in a checking or savings account in a student's name, the federal government will take 20 cents off of your financial aid package, starting with grants and scholarships first. For every dollar stored in a checking or savings account in a parent's name, the federal government will subtract up to 5.64 cents from your financial aid package.
Unfortunately, most parents haven't gotten the memo on how bad college savings funds stored in a checking or savings account can be. According to a study by Sallie Mae, 17 percent of all money saved for college gets stored in general savings or checking account, meaning that families are losing a tremendous amount of money in missed financial aid and tax incentives every year! NOOOOOO!!!!!!
College Savings Cheat Sheet: Checking and Savings Accounts
Accessibility: High. Checking and savings funds can be used for any purposes, educational or not. :)
Risk Level: None :)
Rate of Return: Terrible :(
Tax Benefits: None :(
Impact On Your Financial Aid: More pitiable than Donald Trump's hairline :(