You don’t have to be a financial adviser to understand that the sooner you start putting money into a FDIC insured, interest-earning account, the more money you’ll have when you’re older. If you start saving for college when you’re an infant, compounding interest will work more in your favor than if you started as a high school freshman. Even if the child decides not to attend college, having a savings account that has been growing since they were babies will certainly give them a nice chunk of change when they enter the “real world” of working adults, and perhaps help them secure their first home or vehicle.
There are many options for saving money that offer interest. If you’re interested in starting a regular savings account for your child, take the time to find one that offers the highest interest rate possible. Chances are you won’t need any extra functionality (like a debit card or unlimited withdrawal transactions), so you can focus on finding high interest savings accounts to really maximize the savings potential of the money you deposit over time.
If you’re looking to start a college savings account, you probably want to consider a 529 plan. Each state has their own version of a 529 education savings plan – but their benefits are similar regardless of which state you live in. You can open 529 plans with a small deposit, and contribute regularly (up to a state mandated maximum amount per year). Friends and family can make gift contributions to a 529 account. When your child is old enough to attend college, the money saved in a 529 does not hurt their chances of receiving financial aid as much as other savings accounts might.
Another option for saving for your child’s future is to save money in certificates of deposit. Many people mistakenly believe you need to have thousands of dollars before a certificate of deposit will earn any interest worthwhile, but if you’re starting to put money aside for your child’s future, you have many years to invest. Choose long term certificates of deposit at the highest interest rates you can find, and keep re-investing the profits into a new certificate of deposit each time it matures to benefit the most from CDs. You can also learn to ladder your CD investments to further maximize potential interest earnings.