Take the Fear Out of Paying for College

Series EE Savings Bonds

What they are

When you buy savings bonds, you're lending money to the government, explains Stillman. The government, in turn, pays you back double the amount you gave, plus about 3 percent interest, depending on market conditions. It hardly happens overnight, though. You have to wait 17 years until the bonds fully mature to cash them in for their maximum value. But if you use the money for college, you won't have to pay any capital gains taxes on it if you're a married couple whose household income is less than $116,400 or a single parent making less than $72,600.

What you should know

If your income is over the allowable amount, you're taxed the regular capital gains tax for your tax bracket. But if your income grows with your child, you can always place the money directly into a 529 plan and bam -- it's tax-free again, Stillman says.

While these bonds are the safest bets around, the returns are low and probably won't help your money keep up with the fast pace of tuition inflation, points out Chany.

What you need to start

You can buy Series EE savings bonds in denominations of $50, $75, $100, $500, $1,000, $5,000, and $10,000. But because you front only 50 percent of the face value, you pay $25 for a $50 bond, $50 for a $100 bond, etc. Then, when you cash in, you also earn interest at a rate that changes with economic conditions. So even if the interest rate is lackluster, you will still see 100 percent growth in your money. You can buy Series EE bonds directly from the government by going to any financial institution.

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