From Old School Savings Bonds to New School UTMA

My parents didn't set up a huge trust fund for me for when I went off to college, however my parents were forward thinkers and did purchase U.S. Savings Bonds for me as I was growing up. Before I left my parents home to head to college in California my mom handed over a few thousand dollars in U.S Savings Bonds. I used most of this money to pay for textbooks and other school costs and of course some of it to have a little fun while in college.

Naturally after I had my son, I wanted to purchase U.S. Savings Bonds for him. It was one of the only investment products that I was personally familiar with and knew that they were low risk and I could afford them with my income. Through my previous employer they even had a program where they would automatically take out from my paycheck to purchase U.S. Savings Bonds. This was great because it was easy and they would send the bonds directly to my house, which I would put away for safe keeping.

After my son's first birthday party he had a significant amount of money that he received from family and friends, so my first thought was to purchase U.S. Savings Bonds for him. My other half; Sam, had just started online banking and suggested investing in a Certificate of Deposit (CD). At that time, the interest rate was about 4.0% for a 5 year CD so we decided to put majority of his birthday money ($2,000) into that CD and let it sit there to accumulate interest. Last year we celebrated my son's 6th birthday and the CD was due to expire shortly after. His money had earned a little over $400 in the 5 years it was in the CD. We were happy with that and knew we wanted to reinvest those earnings for him.

We had the option to let the money roll over into a new 5 year CD, however the interest rates have plummeted over the years and his money would only earn 0.90%. I asked my Life Insurance Agent/Investment Advisor for some other options that would give us a higher return since this money is intended for our son's college education and he doesn't need to touch if for at least the next 12 years.

My Investment Advisor gave us a few options, and we chose to go with a Uniform Transfer to Minors Act, better known as an UTMA. He showed us a few different options with different levels of aggressiveness. Since our timeline is at least 12 years out, he suggested that we go as aggressive as we feel comfortable with. So we decided to go very aggressive.

My advisor showed us some illustrations if we had put the money into an UTMA instead of the CD back in 2008. If we had left that same $2,000 in the UTMA, the new total would be about $7,000 meaning our son's money would have almost quadrupled with this type of investment. Sam and I looked at each other with a little disappointment at the amount of money that could have been made. But knew that we were making a smart decision with moving that money now and letting it sit there for the next 12 years, where the earnings potential is great.

We are happy knowing that we are setting up our son to have sufficient finances to go to college and/or pursue his dreams when he gets older. We will continue to invest his birthday/Christmas/savings money into this account over the next 12 years and look forward to see how much he will have at that time.

I still have the U.S. Savings Bonds that I purchased with my previous employer and plan to look into other investment options to diversify or add it into his UTMA account this year. Now that we have our son pretty much set up financially, we now know how we can save for the new baby once he arrives.

I often tease my son that he has more in his savings than I do, which actually isn't that bad. We always want better for our children and knowing that my son will be financially secure right when he hits adulthood is one of the best feelings. Now it is my responsibility as a parent to nurture his personal finance skills so that he is best prepared to manage that money as an adult.

If you have young children, I encourage you to start some kind of savings and/or investment accounts for them. Even if you can only afford putting away $1.00 a day, that is better than nothing. If we were to just save $1.00 a day for my son over the next 12 years, when he is ready to go off into adulthood he would have $4,380.00. Not bad for just a $1.00 a day.