Saving for College
Create Your Own 529 Plan
529 College Savings Plans allow you to fund an account that will pay college tuition at state schools; you pay a fixed amount and the Plan will pay qualified expenses even if costs go up by the time your child enrolls in school. If you know you'll need a specific sum to pay for college costs, one way is to buy zero coupon bonds. A zero coupon bond is similar to a savings bond; you pay a fixed price today and at a future date the bond is worth a set amount. For example, you may pay $5,500 for a zero coupon bond that will be worth $10,000 in twelve years. In effect you earn interest on your initial payment, but that interest is not payable until the end of the coupon term.
Zero coupon bonds are a way to invest a considerable sum and receive a set rate of return. They work a lot like Certificates of Deposit, but tend to generate a higher rate of return. So if you know how much you'll need tomorrow, it could make sense to purchase the right zero coupons today.