This booklet provides an overview of common types of vehicles used to save funds for college. In some cases, you may face complicated tax issues if you plan to pay college expenses with the returns from savings and investments. To realize the full benefit of these instruments, consult with a tax professional before committing your funds.

Savings Accounts
A savings account is a good place to store emergency funds and money for short-term financial goals. Funds are readily accessible and the Federal Deposit Insurance Corporation (FDIC) generally insures savings accounts up to $100,000. The main drawback is low return. The interest rate paid on a savings account is often less than the rate of inflation, so your money may not grow as fast as the rising price of goods and services, making savings accounts inadequate for college savings. On the other hand, if you need to "park" your money for a while until you establish your investment strategy, a savings account might be a reasonable choice.

Money Market Accounts
Money Market Accounts usually earn slightly higher interest than savings accounts but still allow easy access. Some banks and financial institutions require an initial deposit of $1,000 or more and limit the number of withdrawals or transfers you can make during a given period of time. Money market accounts issued by banks are FDIC insured; those issued by financial institutions are not. To get information about FDIC insurance, including whether or not your bank is insured, go to: www.fdic.gov/consumers/consumer/information/fdiciorn.html.

Certificates of Deposit (CDs)
CDs generally earn more interest than savings accounts with equally little risk, but with less liquidity. Like savings accounts, the FDIC generally insures them up to $100,000. CDs provide higher interest rates; in exchange, you agree to keep your money in the CD for a fixed period, usually three months to five years. There is usually an interest penalty for taking money out before the end of the period.

U.S. Savings Bonds (Series EE, Series I)
You need only go as far as your local bank to invest in Series EE or Series I U.S. Government Savings Bonds. The face value of the bonds range from $50 to $10,000. EE bonds are purchased at half their face value. For example, when you buy a $50 bond, you pay $25. The Treasury Department guarantees that new issues of Series EE Bonds will double in value by 20 years from the issue date. This is referred to as the original maturity date. Series EE Bonds earn interest for 30 years. Bonds purchased after April 2005 earn a fixed rate of return, and interest is compounded semiannually for 30 years. I Bonds are purchased at full face value, and also earn interest for 30 years, compounded semiannually. Both EE and I Bonds are exempt from state and local income tax and have certain tax benefits when used for education expenses.

Growth Stocks
Investments in the stock market have the potential to provide better returns than fixed-rate investments (such as savings accounts and CDs), if you have time to let the money ride the ups and downs of the market. The potential for a higher return comes with a higher degree of risk. This is a long-term approach to investing. The word to look for here is growth. When assessing the potential of a particular stock, it is generally a good idea to focus on long-term appreciation rather than dividends. And remember, what the stock market did in the past is no guarantee of how it will perform in the future.

Growth Mutual Funds
A mutual fund is a pool of money, supplied by investors like you, that is invested in various securities such as stocks, bonds, money market instruments, or a combination of these investments. The total investments (holdings) of a mutual fund are called its portfolio. Every share of the mutual fund represents a proportion of ownership of the fund’s portfolio as well as a proportion of the income those holdings generate. Typically, the investment portfolios of mutual funds have a professional manager or team of managers making day-to-day and minute-by-minute buy and sell decisions.

Investing in mutual funds allows you to participate in the growth potential of the stock market with lower potential risk. Investing in just a few stocks can be risky, but mutual funds can help you diversify your investments, and while not guaranteed, diversification can help balance risk. Also, you can start investing in mutual funds with a relatively small amount of money.

There are many types of mutual funds, and the amount of risk varies widely. As with stocks, the share value of a mutual fund will go up and down as market conditions change and investors may make or lose money. Mutual funds are not FDIC-insured, even when they are sold through a bank.

Note that mutual fund companies are required by law to provide you with a prospectus before you invest. A prospectus is a legal document providing detailed information about the mutual fund’s investment strategy, fee structure, and operations and is available from your registered representative. Carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about any mutual fund investment, read the prospectus carefully before you invest. Investment return and principal value will fluctuate with changes in market conditions such that shares may be worth more or less than original cost when redeemed. Diversification cannot eliminate the risk of investment losses.