What the experts say
A break for savers?
Interest rates are on the rise, said Matt Phillips in The New York Times, but chances are “you’re still not making much on your bank account.” Major banks “are almost always slow to lift deposit rates” on CDs and savings accounts, but they “are being even slower than usual” in the current environment. “One reason is that banks don’t really need the money,” since loan growth has been sluggish and they have ample deposits on hand. Another reason: After a decade of near-zero rates, many depositors “seem almost to have forgotten that they’re supposed to get something in exchange for their money.” Internet-only banks are an attractive alternative. Deposit rates for online-only accounts now average more than 1.4 percent; by comparison, savings accounts at major banks average 0.06 percent.
Student loans and your retirement
“No parent wants to be the spoiler of big college dreams,” said Gail MarksJarvis in Reuters.com. But helping your college-bound child at any cost can have a lasting impact on your own financial future—and significantly push back your retirement date. A record number of parents now enter their 60s holding “crippling debt left over from their children’s college years.” Americans over age 60 have more than $66 billion in student loan debt, at an average $23,500 per person. If you have children close to college age, be honest and realistic with your kids about what schools you can afford. Federal PLUS loans have no limits on borrowing, so they can be a tempting source of money for parents, but beware: They currently charge a hefty 7 percent interest. “The best bet is to avoid the debt in the first place.”
Gifting your grandchild an education
If your grandchild lives in a different state and you want to set up a 529 savings plan for her, “first check whether your state offers a tax break for your contributions,” said Kimberly Lankford in Kiplinger.com. Putting money in a 529 plan allows a beneficiary to use the funds tax free to cover tuition and any other fees at all public and private colleges; thanks to the new tax law, up to $10,000 of 529 money each year can also be used tax free to pay tuition for kindergarten through 12th grade too. Thirty states offer tax breaks for 529 contributions. Each state’s rules differ in terms of the amount you can contribute annually before taxes kick in. “If your state doesn’t offer a tax break, shop for a plan based on its investment choices, fees, and other details.”