Savings for Junior

Updated on January 13, 2009
A.E. asks from Saint Paul, MN
22 answers

Hello, Supermoms!

My hubby and I have received some cash gifts for various occasions since our boy was born. We've just been tucking them in his "piggy bank" so far, but now that the pot is up to a few hundred dollars, we'd like to stash it somewhere where interest can accumulate. Any ideas beyond a basic savings account (since that would get him next to nil in interest)? Are CDs a good idea? Or should we wait until we have enough to start a Roth IRA? Would love to hear about what others are doing.

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answers from Madison on

Depends what you want to him to use it for.
ING direct - 2.75% interest rate on savings - better than any bank, hands down.
UPROMISE is a 529 account (education growth fund) to save for college.
CD's would be more maintenance, I think. The other two would be on auto pilot.



answers from Minneapolis on

You might want to consider savings bonds. The series I right now is earning over 5% interest, but it can change. When I was growing up I had relatives that bought the series EE for me and I was able to use that to pay for the community college that I went to.

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answers from Omaha on

Good for you! There is no better time to start saving. The 529 is a good plan and the best thing you can do is to do something, anything. Someone said to me long ago, you either have lots of money or lots of time to earn money. Most of us have more time than money and with kids, they have even more. We use a 529, a savings, buy a few stocks on their birthdays (Toy R Us, Disney etc) and we do have Roth IRA. You would have to talk to someone about this, but if I am not mistaken, your child has to have earned income to have an IRA. We fortunately are in this situation (both girls are doing some local modeling) and have taken advantage of it. The great thing about a Roth, is that is can be used for education with little or no penalty. The 529 is great, but is does have to be used for education. Another note: only open one 529, as you don't need one for each child, if you have more children. The first to college can use their share and the rest is then used for the next child etc.
The market is down right now, but you have to look at it as if everything were on "sale", as everything is down and the market will recover. The best thing is that if you open some sort of account for retirement for you kids, they will have a life time of interest with just a little money. Put it away and don't touch it. It will make a difference! Also, kids can use student loans for education, but you can take out loans for retirement, so the sooner you tuck something away for that stage in their lives, the better off they can be long term.
Good luck!

1 mom found this helpful


answers from Madison on

An option to consider is opening a 529 account to save the money for college tax free. The minimums are very low on these types of accounts and earn interest. The best part is when you go to take the money out in 18 years for college you don't pay tax on the earnings. Depending on your state, you have different options. You can ask at any bank near you and they shoudl be able to help, or google your state name and 529.

If you are set on a savings account type of set up, look online. ING and HBSC both offer internet savings accounts (they are linked to your checking account) that have rates around 4% (which is high for savings accounts). I personally have used ING for over 7 years and highly recommend it.



answers from Rochester on

I use the MN college savings plan for my children and my nephews. It's a 529 plan through TIAA Cref. The cool thing is that MN has a matching program for MN residents. I believe you have to make less than 80k per year to qualify for the match.

You can be as conservative or as aggressive as you want with the investments. It can all be managed online and you can set up separate accounts for each child, with one log-in. Like I said, I have accounts set up for each of my children and for my nephews. I do not give my nephews birthday or Christmas gifts, instead, I put money in their college savings plan.

To check out the plan, go to

To teach my kids the importance of saving, I have also set up savings accounts with Wells Fargo - but the balance is never more than $50. I use it more as a learning tool for them.



answers from Minneapolis on

Hi A.,
That is awesome that you have savings for your kids. All the other suggestions are great. I have one that I do for my kids. I have invested in a permanent life insurance policy for each child. The cash value has potential for interest or dividends and the kids will both have life insurance when they are adults. I have known too many kids with illnesses that make them ineligable for life insurance for the rest of their lives. We also have savings bonds and savings accounts for each as well. Good Luck, let me know if you want any other information.



answers from Davenport on

In these hard economic times, i commend you for planning for your child's future. I would suggest getting in touch with a financial planner at your local bank or elsewhere, to get the best options for your particulat situation. In the meantime, check out some links online and read about how the different options work, so you have an idea of the basics before meeting with your financial person. ** This one has a downloadable comparison chart for many different types of savings plans.

Good Luck!



answers from Appleton on

Check out an orange savings account. It's an online bank and has a better return than a normal account and you don't have to have the money "locked" away in a CD for years.



answers from Davenport on

I would suggest begining with a CD then going to an IRA account.



answers from Minneapolis on

I think all of the posts have made some good points. The one point I didn't see anyone make is that whatever you set up, you should try and put money in it every month. My husband and I have 529s (from MD) for our kids and money is pulled directly from our checking accounts each month. This way we get the benefit of cost averaging on mutual funds, etc.

We have a financial advisor that has set everything up for us and I would recommend seeing if you can get one. Everyone's situation is different so whether you do Roth IRA or 529 will depend on your whole financial picture. I am not so sure I would do CDs or a savings account because the interest rates don't beat may as well be throwing the money away. I know a lot of people are afraid of investing in the market these days but now is the best time to invest when everything is so undervalued. Our advisor has told us that people can make money in a bull market but the best oppotunity to make money is by investing in a bear market. Good luck and keep up the saving!



answers from Iowa City on

I would put your money in a cd or a 529 and not an IRA. IRA's are for retirement and money can not be used without penalty until your child retires. I'd focus more on his college fund now and let him focus on his retirement when he is a full time wage earner.



answers from Minneapolis on

We have our kids' money in CD's. Just shop around for the best interest rates, and don't forget to renew them when they mature. They do make money.



answers from Madison on

We have our daughter's money in a CD. At our Credit Union it is called a certificate plus because you can add money to it. It has a slightly lower interest rate than the other CDs but it also has a $250 minimum deposit. We have $10 from each of my husbands checks put in that account and it has been working really well for us. I really recommend looking at your local Credit Unions, they tend to have much better rates on savings.



answers from Des Moines on

Hi A.,

Most of the CD's I am familiar with, you have to start out with at least $1000.00. There may be one out there that is different, if so, that is what I would probably do at this time. You are right, savings accounts are doing next to nothing, but there just aren't too many great choices out there right now.




answers from Minneapolis on


We did a 529 savings plan for college. The account is non-taxible, but the money can only be used for college related savings. We have had it since 2001 and generally, it earns interest well. Now isn't the best time to ask because we have lost some money in it due to the economic fall out. But because our children are still little, there is plenty of time for a recovery before we need to actually use the money.

Despite how scary the economy is right now, it really is the best time to invest in something like this because you can catch the economy on the upswing and get a good return.

Another trick our financial advisor gave us for the future: Let your child take out student loans even if you have enough cash to pay for college. Why? Because the interest doesn't start accumulating until he graduates so that money can continue to earn interest for an additional four years. And when he does pay it off with the 529 money after graduation, it contributes to his credit rating and he is in a better position to take out a loan for a home, business, car, etc.

Good luck,



answers from Madison on

We have used the Edvest 529 plans. Contributions to the plan are tax deductible (just like Roth). The funds are available for educational expenses only but can be transferred to anyone in the family (I think) as long as the expenses are for education. So if one kid ends up not needing them for whatever reason, you or your other children can use. The definition of educational expenses is fairly broad as I recall. I would definitely look into that option.



answers from Minneapolis on

I would check with your bank on this, but CD's are probably a good option- especialy in this economy! I think they vary in how long you let them grow- the longer you leave them, the more interest they acquire. Good luck!



answers from Duluth on

I would say it depends on how you view your finances. If you simply want to get the most out of your money, a Roth IRA is your best bet, especially if you don't have one opened yet. But...if you're in a situation like ours--we have two boys and one IRA opened already, and would like more children--piling all that money into an IRA means that our children would not have distinct accounts for "their" college money, as only an income-earning individual can have an IRA (or maybe it's an adult? I'm not working right now, but I have one. Anyway, I KNOW my kids can't have one.) As far as earning interest and being sheltered from taxes, the Roth is definitely the way to go. Be sure you shop around and find one with the best rates; they vary quite a bit. We are also looking at a 529 plan, which seems to be the most flexible education account available. We do our finances through Thrivent Financial, and they only do the Nebraska plan, meaning we wouldn't get tax advantages in MN, but on the other hand, they've researched the "best" plans and that's the one they've come to. So...if you're comfortable lumping all potential children's money together with what might even be retirement money, I'd say do the Roth. If not, find a good 529 plan--anything that will give you an interest rate that supercedes inflation.

Ohh--someone mentioned penalty on an IRA...the penalty is pretty minimal; we've been to a number (5? or so) different financial advisors and they've ALL recommended the Roth over a 529 IF you don't plan to max out a Roth on your own, for your own retirement. IF you and our husband can contribute the max (5000? this year) to each of your Roths, you should really save that money for your retirement. If that's not possible, then a Roth is a great place for your kid's college; it gets a much better return than the 529. As for online banks--they get much better interest than brick-and-mortar, but they don't compare at all to a Roth--neither does a CD.



answers from St. Cloud on

Hi A.! We began investing very early with our son. We started with a CD and when we had more $$ we put it in an IRA. The thing is that you don't want to wait on investing. If you don't have enough to put into and IRA do the CD. At least you would be drawing interest!
You can also do multiple things like a savings account that you regularly put small amounts in, plus investments. That way, before you know it you will have built the savings account up enough to make invest MORE!
Good for you for investing in your child's future!

Edit*** I read the other response and thought I should add that you can get a CD starting at $500.


answers from Milwaukee on

My hubby and I were also talking about starting a saving for our daughter but we have not done anything yet so no adivce on that. We are looking into a college saving program that is through our local bank. I would sit down with your bank and have them talk you through what they have to offer.

My in-laws have gotten United States Saving Bonds for our daughter... $100 at birthday $50 at Christmas, so it will slowly add up. I honestely do not know all the details behind it but my in-laws are very savy with money so it must be a good start.



answers from Rapid City on

It is always nice to start a savings plan for your children and putting it in a place where it is safe from parents "borrowing" from it is the best. I know that parents all say "no we wouldn't do that" but when it comes to times where you need money, you do think "well, I could use this and put it right back" but I really wonder how many parents do put it back. So to keep it for your child I would put it in a education account or CD's.

I dont know much about the Roth's IRA and starting a retirement plan on a baby would have him set when he is retired for sure, it also keeps him from spending it on things he doesn't need later on, but keeps him from using it to buy a home when he is an adult also.

Also, I wonder about a whole life life insurance policy. It would be a paid up policy with cash value when he is an adult.

I do know that with CD's I think you have to have at least $1000 and you can set them up for automatic roll overs which will earn you interest upon interest and is a pretty good way to save. I also know that a regular savings account doesn't earn much but earns more then the piggy bank at home does, so until you decide what to do, I would put it in a savings account.



answers from Cedar Rapids on

I would look into an education IRA...they might be called something different now. I have been out of the biz for several years. You can get them set up with a small monthly amount with nothing least you used to be able to. If you have any lutheran history I would call Thrivent. They will work with you and plan your finances, and there is no charge for financial planning. If you don't think they are right for you try something else, but you could at least get some ideas for free. Make sure your IRA is used like cash when they go to college. There are no penalties if they funds are used for school. IF they don't go to school they would have penalties for taking it out.

Good Luck


p.s. I would also get your child a good life ins policy if you haven't already. Nobody wants to think something could happen to their child, but other things make a difference. If your child decides to skydive, or be a pilot they end up with really expensive insurance, or insurance that wont cover them while they are flying or jumping. Just something to think about.

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