Should You Use Savings Bonds To Pay For College?

Should you use savings bonds to pay for college

Flickr user TheKarenD

You have big hopes and dreams for your children from the day they are born. One of those dreams is to help them pursue a career they love. You understand that a good career may require a college degree, but the cost of college scares you. You’re not alone here. Most parents start exploring their options early looking for solutions. Using your savings bonds to pay for college is one of those options.

Consider both the pros and cons before deciding if you should use savings bonds to pay for college. But, we do think the benefits far outweigh the drawbacks.

There’s Plenty of Time to Let the Savings Grow

Start a savings bond at the earliest point possible. Investments can start small, often as low as $25. You can ask family members add to the bond by way of birthday and Christmas presents. Not only that, the bond also grows slowly and steadily over the years.

Saving bonds are not known for having a huge return on your investment. They do not offer a high interest rate. But, if started early enough, you do get decent returns.

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It Acts As a Safety Net

If you are not the type to take big risks, then a savings bond can be a safe place to invest. Because they are government guaranteed, you won’t have to worry about losing any of your principle investment.

While it may not have a high interest rate, and your return may not be extensive, it is better than putting it under your mattress or storing the money in a piggy bank. A small return is always better than no returns at all.

You Enjoy Tax Breaks

The biggest perks of using a savings bond for a college education are the tax benefits. The Educational Bond Program is designed to give students who use a savings bond to pay for higher education a tax break.

Those who use bond money to pay for school only have to pay partial income tax on the withdrawal. In some cases, bond owners are completely exempt from paying income tax as long as they use the money to pay for college within the same year as the withdrawal.

It is important to note, the bond should be put into a parent’s name so that the bond is eligible for these tax breaks since the holder must be at least 24 to qualify for them.

Planning Ahead is Important

Because of the penalties if you withdraw at the wrong time, it is best to be clear on the stipulations of the bond you chose. Read the fine print before you cash out. If you can wait until the bond reaches full maturity (30 years), it makes the benefits even better.

So, Should You Use Savings Bonds to Pay for College?

Saving for their child’s future is the one thing on most parents’ minds. If it is your dream to make your child’s dreams come true, using savings bonds to pay for college could be a great way to start. Bonds may not make you rich, but they can be a great no-risk investment that can grow over time if you get started early.

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