Many 529 plans include savings accounts, CDs with tax benefits

ByABC News
September 28, 2009, 10:15 PM

— -- People who have been involved in serious auto accidents tend to drive very carefully for months, or even years, after the collision. Some buy a bus pass and never drive again.

Many parents were similarly traumatized after last year's bear market demolished their college savings plans. Unlike workers who are saving for retirement, parents who are saving for a child's college education don't have a lot of time to recover their losses.

One option for parents who can't bear to take any additional risk is a savings account or certificate of deposit that's insured by the Federal Deposit Insurance Corp. Several states now offer bank savings accounts and CDs within their 529 plans, providing the tax benefits of a 529 plan with the sleep-at-night security of an account that's federally insured for up to $250,000.

You don't have to be a resident to invest in a state's 529 college savings plan, although some states offer tax breaks and lower fees for residents. Choices for savers with a low tolerance for risk include:

The Virginia College Savings Plan's CollegeWealth account, www.virginia529.com. Virginia's plan offers an insured savings account through Union Bank and Trust, a community bank with branches in central Virginia. Later this year, BB&T, a regional bank based in Winston-Salem, will also offer CollegeWealth accounts.

The Utah Educational Savings Plan, www.uesp.org. Utah introduced an FDIC-insured savings account in February. Unlike some other federally insured 529 plan options, there is no minimum contribution required to open an account.

The account is offered through Zions First National Bank of Salt Lake City.

Ohio CollegeAdvantage, www.collegeadvantage.com Ohio's 529 plan offers savings accounts and CDs through Fifth Third Bank. Terms for the CDs range from three months to 12 years.