A father sits with his son on a couch and plays with a piggy bank toy after setting up a CD for college savings.

Using a CD for College Savings


Looking into ways to save for college? Here's what to know about certificates of deposit (CDs) for college savings.

College can be expensive, so it’s important to start saving early. If you’re interested in a safe, long-term college savings account to store college funds where they are insured by the government and pay interest rates above the typical checking or savings account, you may want to consider a CD for college. Keep reading to learn how to turn a certificate of deposit (CD) into a college savings account.

College Savings Account Options

One of the best-known college savings account options is a 529 account. While these college savings accounts come with a tax advantage, there are many rules and restrictions that govern how they work. 529 plans are typically designed for investing, which could be a risk some households want to avoid.

You can also use any regular investment or bank account to save for college. Those don’t come with the same tax benefits as a 529 account, but they also don’t have the same restrictions. When you use a CD for college, you can withdraw the entire amount for any purpose without any additional taxes or IRS penalties.

The Benefits of Using a CD for College

Most people don’t instantly think of a CD for college. However, this is an excellent college savings account thanks to a combination of benefits. Consider these benefits as reasons to talk to a banker or head to your bank website to open a CD for college:

  • Above-average interest rates: The first reason to use a CD over a checking or savings account is interest. Higher interest rates help your savings balance grow faster. In many cases, banks reward customers with a higher rate on CD accounts than most checking, savings, or money market accounts.
  • FDIC insurance: CD accounts are insured by the Federal Deposit Insurance Corporation (FDIC). Under current rules, savers are insured for up to $250,000 per depositor per financial institution. That means you can save up to $500,000 essentially risk-free with joint CD accounts. CD accounts never go down in value.
  • Timed deposit options: CD accounts come with one very unique feature. Deposits are made for a certain period of time. This is a benefit when saving for college, as you know you have a long and specific time horizon for your savings. Once the accounts are locked away in the CD, you have less temptation to spend on anything else.
  • Use for any purpose: Unlike a 529 plan, which requires funds to be used only for allowed education-related expenses, you can use the funds from a CD for anything. If your student earns a full-ride scholarship, you are not stuck with funds in a 529 plan. You could give them to the student as a reward for earning a scholarship, buy a reliable car to get to school and back, or finance a trip abroad. When you use a CD for college, there are no strings attached.

Drawbacks of Using CDs for College

CDs are a good choice for many college-bound families, but they are not perfect for everyone. These are drawbacks to consider when using a CD for college:

  • No tax benefit: Compared to a 529, CDs are missing-out on a tax benefit. Any income generated from a CD is typically taxable.
  • Timed deposit: While the timed deposit feature is a benefit that helps keep money safely locked away for college, it’s also important to time your CD accounts to mature at the right times if you plan to use funds for tuition or other expenses with a regular due date.

CD for College Savings Strategy

When using a CD for college, you may have a decade or more before you need the funds. That gives you the most flexible time frame to choose the best interest rates available, which should be prioritized when picking CD accounts.

You may want to follow a strategy called a CD ladder where you buy multiple CDs with varying maturity dates over a period of time when you expect to need the funds, or you can keep rolling them over and watching the balances grow.

If you are saving for a child or grandchild, for example, you may want to put away a certain amount every year. When the CD maturity date arrives, that could be your annual reminder to buy another CD or add to the balance.

For those who are not sure of the best combination of CD accounts, you can call up a trusted banker for advice or visit a local branch to explore your options.

There’s No One Way to Save for College

According to U.S. News & World Report, the cost of college at in-state universities increased 72% from 2008 to 2021. For the 2020-2021 school year, the average cost of tuition and fees alone was $41,411 at private colleges, $11,171 for in-state students at public colleges, and $26,809 for out-of-state students at public colleges.

College is expensive. Many students combine scholarships, grants, student loans, and college savings accounts to cover the cost of tuition, fees, books, room, board, and an occasional late-night pizza to keep the study session going.

There’s no right way to save for college, just a way that’s right for your family. For many households, a CD for college could be a part of the puzzle of paying for a college education.

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