Viability of US Savings Bonds to Fund College

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Viability of US Savings Bonds to Fund College

Saving for college has become a priority for many American families. With most university tuition rates climbing every year at record pace, it can seem nearly impossible to send your children to a good college or university without going into deep debt. But it doesn’t have to be that way. With a little planning, you can make your college savings plan go a long way.

Using a US Savings Bond to Save for College

Many parents with young children wonder if it is viable to use US savings bonds as a savings vehicle for their children’s future education. The truth is that a US savings bond can be a great way to save for college for many families. Most US savings bonds offer competitive interest rates, and they come with the added security of being backed by both federal and state governments, as well as being subject to certain income tax benefits from both levels of government. Here is some information about saving bonds and what they can do to help you save money for your child’s college education.

The Series EE Savings Bond

One of the most popular US savings bond vehicles that are purchased by parents who are looking to save money for their children’s college education is a US savings bond from the series EE savings bond series. Analysts have recently estimated that a US savings bond from the series EE that was purchased in 2006 will likely earn 3.2 fixed interest rate percentages over the life of that bond.

The Series I Savings Bond – AKA the I Bond

What about the series I savings bond? It is also commonly known as the I bond. What is the difference between the series I savings bond and a series EE US savings bond? The main difference is that the series I savings bond carries an interest rate that is determined by the federal government. In general, the federal government determines the interest rate for the series I savings bond by determining a basic low fixed rate, as of now that is one percent, and then adding on an inflation rate to that that reflects the latest increases in the consumer price index.

How to Make Your Money Grow with a US Savings Bond

Regardless of whether you choose an I US savings bond or a Series EE savings bond, here are some basic things you should know about how to make your money grow. First, you should always wait at least one year before cashing in your US savings bond. You should also know that in most cases you will forfeit at least three months interest if you decide to cash in your US savings bond within five years of your initial investment date.

Tax Incentives of US Savings Bonds

In most cases, you will find that your US savings bond comes with many attractive tax benefits. For interest, you will not have to pay taxes on your interest on your state tax form, and in many cases, your interest may also be free from federal taxes.

Why a US Savings Bond May Be a Better Option than a 529 Investment

In most cases, analysts predict that a US savings bond will tend to perform better than many 529 college savings investment plans. However, this strictly depends on what kind of 529 college savings investment vehicle you have chosen. Some state 529 college savings plans will indeed outperform a US savings bond over the long haul. Much of this depends on the condition of the market in future years, inflation trends, and a number of other fluctuating conditions.

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