[Updated in October 2015: Interest rates were lowered to 1.0% at BB&T, 1.25% – 1.5% at Union Bank & Trust.]
If you like a principal-guaranteed option for a 529 plan account, but you aren’t quite sure about the MetLife stable value fund in the Colorado Stable Value Plus 529 Plan, here’s another option, although the interest rate you get is a lot lower.
Virginia’s CollegeWealth 529 Plan offers FDIC insured savings account through regional bank BB&T and Union Bank & Trust. The interest rate is 1.0% APY at BB&T, 1.25% – 1.5% at Union Bank & Trust. There is no monthly maintenance fee.
You don’t have to be a Virginia resident to use this plan. It’s OK to have two or more 529 plan accounts offered by different states for the same beneficiary. You can transfer money from one 529 plan to another 529 plan once a year for the same beneficiary.
The 1.0% – 1.5% rate from these savings accounts in the Virginia plan is better than similar options in other plans. For instance, the FDIC insured savings account in Utah’s plan pays only 0.33%. The money market fund from Vanguard in Nevada’s plan pays only 0.07%. The FDIC insured CDs in Ohio’s plan pay 1.5% only if you lock in for 4 years or more. A one-year CD in the Ohio plan pays only 0.5%.
The MetLife stable value fund in the Colorado plan guarantees its 3.09% rate through December 31, 2015. The savings accounts in the Virginia plan don’t have such a guarantee. As in other savings accounts, the interest rate can change at any time. If rates drop and you have better options, you are not locked in to anything. You can just move your 529 account to a different plan.
Anybody in the country can open a 529 plan account with BB&T or Union Bank & Trust. Once you get the account number, you can either transfer in a portion of an existing 529 plan account or contribute new money. After that, the account works just like a savings account. You get interest credited monthly.
This 529 plan is great for holding the bonds portion of your 529 account or for a student already in college or about to enter college. At that stage, you are better off with a savings account than a money market fund or a bond mutual fund.
[Photo credit: Flickr user Lee Cannon]