College savings credit cards
Right after the baby showers and ahead of the christening, most parents
start to worry about the mind-boggling future cost of educating the
apple of their eye. Trends in College Pricing 2003, issued by the
College Board, estimates a four-year degree will cost around $200,000 in
The credit card industry, always mindful of what will be attractive to its customers, sees an opportunity to be useful with its college savings credit cards.
These cards are similar to cash back cards, with one major difference. Instead of paying you a rebate on your purchases by check, they invest to money in a 529 plan. These plans were made tax free in 2002, although they have been around since the 1990s. The proceeds of some are available only for in-state college education, while others are nation-wide in scope.
Don't expect to fund your child's entire education with the rewards, but every little bit helps. Spending on your card of around $1,000 a month could result in about $120 being put aside for your child, a total of around $4,080 over 18 years including investment return if you start with the card when your child is born and earn an average of 7% a year.
In fact, the online BabyCenter Store has its own card with this thought in mind. The company estimates that first-time parents spend $6,000 on child-related expenses before their child is born. The card offers a 5% rebate on purchases from BabyCenter, 1% elsewhere, and rebates of up to 20% when the card is used at participating merchants. With those sorts of rebates, savings can mount up quite rapidly. Five percent on $6,000, for instance, is $300, which can then compound in a 529 investment account until the child goes to college.
This card offers a range of investment choices beyond a 529 college savings plan. Money can be paid into a money market account, any mutual fund, or into a standard savings account.
Bed Bath & Beyond is another merchant with a college savings plan. It's part of an affinity program, Upromise There is no additional card to carry around. It's a registry for the cards you already own. Money spent on one of these cards with Bed Bath & Beyond earns 1% toward your child's education.
The MBNA BabyMint College Savings card earns 1% on all purchases anywhere, and an extra 1% to 7% on in-store purchases made within a network of 500 leading merchants. Rebates of up to 30% are available from 200 on-line merchants. The MBNA Fidelity 529 card offers 2% on all purchases with a limit of $1,500. Cardholders must have a Fidelity 529 savings plan.
Citi Upromise offers 1% on all purchases with an additional 10% on qualifying items at participating grocery and drug stores. There's a further 2% on gas bought from Mobil or Exxon gas stations. The annual contribution limit is $300.
You won't accumulate $200,000 this way, but it's a lot better than nothing. The earlier you start, the more time there is for your investment to compound, and the more there will be in the fund when it comes time to use it.