When you begin to think about how much it will cost to send your children to college one day in the future, it can be overwhelming. While it is impossible to estimate the actual cost of four years at the university or college of your child’s choice, it is possible to start saving and preparing for that day. The more money that you can put away in your New Bedford credit union accounts, the better off you will be when that day comes.
Some people start saving the moment they find out that they are expecting, but studies show that most parents don’t really start saving until their children are in grade school or middle school. To maximize the amount of money that you can save, don’t just move it from your credit union checking account to a share savings account, learn how to use your New Bedford credit union membership to grow your money. It pays to spend a bit of time working with your local customer representative at St Anne Credit Union and learn about your options.
No matter how good the share savings account that is available through your local credit union, you will always be able to get a higher interest rate from other savings opportunities, such as money market accounts, certificates of deposit and other long term savings options. You can even move your money around to boost your monthly savings investments by using your credit union online banking service – just ask your representative for more information on all the ways that you can save.
TAXES ON SAVINGS
Another thing to consider when saving money for your child’s education is how the federal government is going to tax those savings. When you work with your local New Bedford credit union representative at St Anne Credit Union, make sure to talk about how to best situate your savings and assets to ensure that your child will have access to all the funds they need for their education. Taxes on certain types of savings beyond the basic share savings account may end up being at a higher rate than you are anticipating.
With regard to federal financial aid programs, the formula that is used to determine how much aid is available for the student has much to do with assets. For example, if the parents have $100,000 worth of assets, the federal government will require them to contribute as much as $6,000 toward their child’s education before qualifying for financial aid. However, if the assets, which can be in the form of a credit union checking account or another type of savings account, is in the student’s name, the percentage would be much higher. For example, if the student had $100,000 in assets in their name, the federal government would require them to invest a minimum of $20,000 toward their own education, compared to the $6,000 for parents.
BONUS TIP – Students can have up to $3,000 in their credit union online banking checking, savings or other type of deposit account, without losing any of their financial aid opportunities. This information comes directly from the Department of Education, however it should be verified on a regular basis to make sure that the maximum limits or types of accounts where the money can be held have not changed.
Types of College Savings Programs
There are three primary ways that parents save for their children’s college educations. The first is an investment program known simply as a 529 college plan. It works similar to an IRA or 401(k) type investment plan, allowing for tax-free savings through a choice of investment opportunities. Many parents will aggressively invest using this type of strategy when the child is very young and then later switch to a more stable approach to investment as college age approaches, to take advantage of as many tax advantages as possible. The parent is the owner of the account, not the student, which means that the assets belong to the parents and they have the ability to change the beneficiary if the child it was originally intended for decides not to go to college.
The second type of savings options available for parents is a certificate of deposit or CD account. Your local New Bedford credit union can help you with this of savings, and it can be monitored through your credit union online banking system. A certificate of deposit is similar to a share savings account, however a minimum balance is required and a set term for investment is also part of the package. Terms can range between six months to up to five years. Account holders can receive the interest on a monthly basis or leave it into the account to be compounded monthly so they can grow their money. Money can be moved easily from your credit union checking account into the CD to help increase your earnings potential.
The third type of account is a money market account. This is what is known as a variable rate account. While it can help you to build up your savings considerably, there are also requirements that must be adhered to with this type of account. The minimum required to open a money market account at St Anne Credit Union in New Bedford is $2500. You can add more, but it cannot be less than $2500. If the balance drops below the $2500 threshold, the interest rate will drop down to the amount paid in the NOW account level. Again, by keeping these investment assets in the parents name, you will help your child to become eligible for more financial aid and tax savings down the line.
Contact St Anne Credit Union to learn more about saving for college, getting a credit union checking account, joining with a share savings account or for more details on how to use our credit union online banking, give us a call at 508-993-0011 or visit us at our Union Street location in New Bedford, MA.