Stocks, Bonds, and Mutual Funds, Oh My!

In the college savings popularity contest, stocks, bonds, mutual funds, and CDs come in just behind checking and savings accounts. Nearly one in four families save for college using one or a combination of these vehicles and many lose out on financial aid because of it. The benefit of choosing these vehicles is threefold:

* Stocks, bonds, index funds, mutual funds, and CDs can provide some cash liquidity. How much depends on what your specific investments are.

* Like funds in checking and savings accounts, money in stocks, bonds, index funds, mutual funds, and CDs can be used for non-educational purposes if Junior decides not to attend college. While you will not pay a penalty to use your money for non-collegiate expenses (as is the case with 529 plans), some investments, CDs in particular, require account holders to keep their money invested for a specific amount of time. Pull your funds out early and it will cost you.

* This is the big one - Stocks, bonds, index funds, mutual funds, and CDs allow account holders to have control over their money. Unlike 529 college savings plans that force investors to choose one of a few, pre-packaged portfolios, families who opt to play the markets on their own can invest in anything they darn well choose.

The problem—and raise your hand if you saw this one coming—is that stocks, bonds, index funds, mutual funds, and CDs come with risk. Throw your funds in shaky investments and you could wind up with less money than where you started. Choose well and you could spend the rest of your life using money as toilet paper.

These vehicles also pose the same tax and financial aid problems as checking and savings accounts. Like other bank accounts, funds stored in a stock, bond, mutual fund, or CD held in the student's name can take up to 20 percent off of a federal financial aid package; funds stored in an account in a parent's name can subtract up to 6 percent. On the other hand, saving, investing, and making money is rarely a bad thing.

College Savings Cheat Sheet: Stocks, Bonds, Index Funds, Mutual Funds, and CDs

Accessibility: Low to High, depending on the rules of your particular investment. Funds stored in any of these accounts can be used for any purpose. :)
Risk Level: Low to High. :
Rate of Return: Negative to High depending on your luck and knowledge of the markets :
Tax Benefits: None :(
Impact On Your Financial Aid: Devastating :(