Savings account with College Savings on or off budget?

I haven't done this yet, but I have an old account at my credit union that offers between 4-7% interest per annum (you don't really know until their AGM). Now, it's currently inactive and I never really saved in it because it was really out of my way to get there and if I needed to get money from it I had to wait in a line for 30-60 mins which is my whole lunch break. But now that all my other accounts are down to 2.75-3.75% and I need to start saving for my kid's college (he start in about 2.5 years), I am planning to reactive it and start saving this money there and maybe my emergency fund. They have online banking now to transfer money to an ATM card for emergencies and my employer offers transfers from my salary to this credit union. I don't plan to be withdrawing from it until 2.5 years from now but I wonder, should I put this as on or off budget? What do you think?

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  • What's this credit union? It's hard to believe there's a risk-free account offering anything like 4%, let alone 7%. But if there is, I want in! (Oh, and I think off-budget is fine.)

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      • kayjenx
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      • kayjenx
      • 2 yrs ago
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      mamster haha. There is no such things as "risk-free" here BUT the local financial industry is pretty safe. I work at a local bank, so I would know. However, because times are harder the banks are forced to lower interest on savings to lower interest of loans since we are not so "big" on fees. People will run quick. All of the accounts at my bank are completely free to have as long as you are using it once a year. The credit union offers better savings rates because they charge 12% of loans. but most people still take that because you can borrow the equivalent of what you have in savings by just walking up to the teller, no credit check or anything. and you can pay back whatever you want however often you want (or they just take it from your savings anyway). with the bank they are strict on how much you pay. charge a penalty for paying back faster, etc.

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  • Hi kayjenx !

    We suggest including your savings accounts as on budget accounts so you can budget those funds too! This would allow you to budget the funds in that savings account towards a "Kid's College" category, or something similar! Here's an article that talks about how it works and you can take a look at this 7-minute Whiteboard Wednesday about savings as well!

    The nice thing about that is you'll be able to attach Goals to those categories, and that will focus your savings even more. (How much did you want to have saved for tuition in that 2.5 year time frame?)

    If you have the time, attend our free workshop about savings called Reach your Savings Goals and let us know if you still have questions!

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  • Thank's for the reply. I was thinking about that too, the goals and because I would like to have other "categories" saved for in the account too. I need to save about $40K between now and the last semester of college. I am estimating like $5K per semester. The more money I can save before college starts the better but I am still paying off debt for the next year and a half so for that time will probably not save as much as I would really like to.

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  • Normally I would agree with Faness  in regards to savings accounts. And it makes sense for this use case. 

    However if it's long-term savings and for someone else...

     

    I keep money that goes to my kids out of the budget once it enters a separate account. It gives it to them and is no longer available for dealing with Rule 3. They each have a savings account, brokerage account and Treasury Direct account that receive money from us every month. They are not included in our budget and not part of our net worth calculation. It's their money and this way it stays their money.

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    • nolesrule I completely understand what you mean here - I was thinking of this like a long term purchase (for tuition) instead of an actual gift to someone else (which, technically, it is). 

      kayjenx Either way will work! If you decide to keep that amount in a Tracking account, be sure to use the Monthly Funding Goal option so that when you transfer the funds to the Tracking account it doesn't count against your goal.

      Just a side note to you both - you're wonderful for planning ahead for your children's futures! :)

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      • kayjenx
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      • kayjenx
      • 2 yrs ago
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      nolesrule Thanks so much for the advice. Actually, both my children have separate savings accounts which are not included in my budget or even in YNAB. So on those accounts I agree with not having them on budget. There are differences for this account though so I think I will go with on budget. Here's why:

      1) I must pay for my son's college for at least 2 years because we will be 16 when he starts college so it's not really a gift. Actually our law states that we should help with kids until age 21 if they are still in school. I can even get child support until he is 21 (if still in school).

      2) The reason I am not saving this money in his own account is because if he doesn't plan to go more than 2 years, he's not gonna get this money so I don't see it as his. Whatever I put into his account is legally his from the day I deposit it. And, I still have his sister who will need to go to school and will be 16 as well when she goes to college so I can put that money towards her college.

      3) It's my account and I plan to be saving for other things in it like my emergency fund and probably other long term goals.

      Faness Thanks for your advice.

      I'll be sure to take everything in to consideration.

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    • kayjenx Got it! With that explanation, I take back what I said about the gift (it's still wonderful that you're planning ahead for them, though!). ;)

      If you have any questions as you get things set up, don't hesitate to ask!

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