Financial questions

[milos_mommy]

I want to open some kind of bank account, trust, or something along those lines for my kid.

Ideally, I'd like to open some kind of account where relatives could put money in on birthdays, special occasions, etc. and the child would have access to it after a certain amount of time/at a certain age, and it would accrue interest. I don't know if that would be a regular savings account, or something different.

My options seem to be a savings account, 529 plan (which could ONLY be used for college), or a trust.

I'm also considering putting some money into bonds for my child, but that seems to be a whole different ballpark...if I buy U.S. Saving Bonds for my kid, it says they can be cashed after 12 months. Are they something that will increase in value for the next 18+ years?

I'm a little skeptical of the 529 college saving plans, but I think that's something extended family would be able to put money into, and no one would be able to take money out except for college tuition, which is appealing. Does anyone have one of these? Can you explain how it works? I've read up about it on a few different college and government websites, but there are a lot of different options, and I haven't found any sites that explain how they work really well.

 

[MilliesMom]

Honestly, if you don't know a lot about investing or the like, you're further ahead to find yourself a good investment counsellor/financial advisor. Ask around with your family and friends, see who they use. Even somebody at your bank. And no, you really don't need to have huge amounts of money to have one, just somebody you trust.

 

[milos_mommy]

None of my friends or family would use any kind of financial advisor - and my only experience with financial advisors was working for one who was disgustingly corrupt and I'm fairly certain is in jail right now, so not the best.

How do I go about finding a good one?

 

[MilliesMom]

Well, a good start would be NOT your former employer, any of HIS co-workers, any of his immediate family or anybody who remotely reminds you of him. Beyond that, not much help. I sort of inherited mine.

 

[milos_mommy]

I guess I'm a little hesitant or self-concious of asking someone who I'm not really close to for financial advice, even if it's just to recommend an advisor, but my whole family (which is not a lot of people) are terribly financially irresponsible, and I don't think any of my close friends use one.

 

[Psyfalcon]

EE Bonds double in value after 20 years. (You buy for 50 now and get 100 back in 2033). Thats a guaranteed interest rate of 3.5% which is beating inflation at least.

Problem is, that is in 20 years. At the moment, the interest rate is .20% so if you plan on cashing them in in 5 (or 18...) years, you won't get much. Most people go to college at 18, not 20.

I have a stack of EE bonds, but kind of wish maybe someone bought stock or mutual funds instead.

 

[Gempress]

I really like your idea! I wouldn't worry about a financial adviser or accountant for something like this. There are plenty of books at the library or online articles that will help you out.

To answer your questions about savings bonds: Savings bonds are basically loans you make to the government. You buy savings bonds. The government gets the money and gives you interest for it. It's just like how you pay interest on any loan you get.

Savings bonds are purchased for half their face value. For example, you'd pay $25 for a bond with a $50 face value. Savings bonds have a certain maturity time. That $50 bond isn't guaranteed to be worth $50 until it's fully mature. I believe it's usually 20 years. However, you start earning interest on the bond right after you purchase it. You can cash it in after a year, but it won't have earned much interest. That hypothetical $50 bond may only be worth $26 in a year. But the good part is, it will not be worth less than what you paid. At the very least, you'll get your money back. If you go really long term and keep them more than 20 years, you can end up with a bond worth even more than it's face value. It's just like any other loan: the longer it takes before it's "paid off", the more money it gets in interest.

I personally am a fan of savings bonds. The good thing about savings bonds:
- since it's a loan made to the government, you don't pay taxes when you purchase savings bonds. And since it's made to the U.S. government and not a private institution, odds are, you don't have to worry about losing your money because your financial institution went bankrupt. .
- You can redeem them for cash relatively quickly, with no strings or rules attached. A lot of other type of investment or college accounts have very specific criteria on when withdrawals are allowed.

Hope this helps!

 

[MilliesMom]

I'm thinking you might want to go talk to somebody in the investment section of your bank? Just be careful they don't talk you in to more than you can afford.

 

[CaliTerp07]

529 plans are generally thought of as the best type of investment for children. They can be used for any higher education costs (tuition, housing, books, etc) and are tax free if used for their intended purpose. That's a huge savings when you think about it! For most of us, that's 25-35% more money compounding.

If your child does not go to college, you just pay taxes on it (like you would have anyway had you not invested it), plus a 10% penalty on earnings. I believe 529 plans are transferable to others though, so if you have another child (or a niece/nephew, or even yourself if you go back) and want to contribute to them, it can still be tax free.

Do your reading if you choose a 529 plan though. You are able to invest in any state's plan, and some are definitely better than others. (Utah's is always ranked quite highly, while Virginia's has some funky clauses in it. Not sure what NY's looks like).

A savings account is nothing more than stashing money in a coffee can these days. Interest is paltry. CD's aren't much better. Bonds give you some interest, but you're locked into 20 years if you want it to its fullest. You could open a mutual fund for kidlet so the money is at least growing, but unless it's an IRA (for retirement) there are no tax shelters so you lose some of the benefit.

I like the motley fool for easy to understand investment advice.

 

[milos_mommy]

Thanks everyone! This advice is all really helpful! I didn't think of looking into library books, which will probably have more information than the silly internet, so that's a great idea.

I'll probably go with opening a 529 plan, and maybe purchase some bonds as well.