Saving For College Using Personal Investment Accounts: Your Investment Options

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No matter what you're looking for, there's a type of account that will fit you perfectly. You may choose to go the staid and sedate root, sticking with a savings account at your local bank or savings and loan. You could give a broker a call, and set up an appointment. You can go online and see what's being offered there. Or you can walk into the local office of your friendly mutual fund company and check out its offerings.

Interest-bearing Bank Accounts — "Ol' Faithful"

Bank accounts are the most common type of personal investment account, and they may not be something that you typically associate with the term investment. Still, interest-bearing bank accounts have been around for a long time, and they represent a very safe, not-too-exciting place to keep your money. Savings and loan companies, commercial banks, and credit unions (which aren't strictly banks, but which operate so similarly to a savings and loan that the difference, for this discussion, is moot) offer these accounts.

When you put your money in a savings account (including passbook, regular savings, bank money market, or even certificates of deposit), you give your money to the bank, which in turn lends it to someone else. That person pays interest to the bank on the money he borrows, and the bank pays you interest (lower than the amount it charges the borrower) on your deposit. For handling this transaction, the bank keeps the difference between the amount it charges the borrower and the amount you receive. Everyone's happy; at least while bank interest rates offer a reasonable return on your investment.

If you like the idea (and the perceived safety) of a bank account, shop around for the one with the highest interest rate and lowest fees. And, if your high rates vanish overnight (which often happens when certificates of deposit come due), don't be afraid to go shopping again.

Interest-bearing savings accounts at commercial banks and savings and loan companies are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 for your total deposits inside one particular institution. Credit union accounts are usually federally insured by the National Credit Union Administration for the same amount, but check with your credit union.

The $250,000 maximum insured amount isn't per account; it's per depositor per institution. If you have several accounts at one bank all registered the same way (John Jones, for example), be certain that your combined balance doesn't exceed that figure. If it does and the bank goes bust, you can recover only the $250,000. You lose the rest. If you have multiple accounts at the same bank, but they are registered differently (one is John Jones, for example, and the second is to John Jones and Mary Jones, jointly), each account is insured for the maximum $250,000 in case the bank fails.

Brokerage Accounts

The days are long gone when only the rich had stockbrokers and brokerage accounts. In these times of easy access to stocks via discount and Internet brokers, anyone with a minimal amount to stake can play the stock market. And, because you need to have a brokerage account to buy or sell any stocks, bonds, or other type of marketable security, many people find themselves with one or more accounts in their names.