Yahoo Finance Compare Credit Cards That Offer College Savings Rewards
When his oldest daughter was still in diapers, Rob Diestel opened a credit card that funnels cash rewards at a rate of 2 percent of his purchases into a Fidelity-managed 529 college savings plan.
Fifteen years later, the Norton, Massachusetts, dad of three says he's earned about $10,000 -- including investment returns -- for college savings by using it as his primary credit card.
"I love the card," he says, adding that before he had kids, he primarily used a credit card with airline rewards points. "As a new dad, my priorities changed."
There are a handful of credit cards that will channel cash rewards directly into 529 plans, or college savings plans with tax benefits. These include the Fidelity Investment Rewards American Express Card, Alabama's CollegeCounts and Illinois' Bright Directions 529 Rewards Visa cards, and the Upromise MasterCard issued by Barclaycard.
[Learn about the federal tax benefits of 529 plans.]
Matt Schulz, senior industry analyst for the credit card comparison website CreditCards.com, says the cards offer an easy way for busy consumers to save for college.
"When you're talking about college savings, if you can build that up just by doing all the regular spending you would normally do, it can work out pretty well," he says. "People aren't going to get rich off of it, and it shouldn't be the only thing you do, but it can be a decent supplement."
Kevin Yuann, general manager of credit cards for NerdWallet, a personal finance website, says parents should do their research and compare 529 plans before signing up for a credit card for its rewards.
Prospective cardholders will need to determine how well a card fits their lives and the value of adding another credit card to their wallets.
"Going into credit card debt to build a 529 doesn't make financial sense," Yuann says.
[Discover eight ways to maximize your credit card rewards.]
Andrea Feirstein, managing director of AKF Consulting Group, a strategic adviser for the college savings industry, says she thinks the cards are a great idea for families who are looking to save for college "any which way they can."
"I think the challenge, why we don't see more of them, is the consumer already has a lot of affinity cards," Feirstein says. "Almost any consumer, anyone who uses a credit card in a responsible way, probably has a card where they're earning points and using those points for something."
Investors with a Fidelity Investments brokerage, IRA, 529 plan or cash management account may want to check out the Fidelity Investment Rewards American Express Card. The card offers 2 percent rewards toward those accounts, and has no annual fee and no limit on rewards. The interest rate is a little below average for credit cards -- 13.99 percent -- and the rewards are double the industry standard of 1 percent.
"If Fidelity offers the right 529 plan for you, the Fidelity American Express card is a good option for building your 529," NerdWallet's Yuann says. Fidelity offers 529 plans in New Hampshire, Massachusetts, Delaware and Arizona; investors do not need to be residents of those states to invest in the plans.
[Learn the do's and don'ts of choosing an out-of-state college savings plan.]
For investors with 529 plans managed by Union Bank & Trust Co., which include Alabama's advisor and direct-sold 529 plans CollegeCounts 529 and Illinois' advisor-sold plan Bright Directions, the CollegeCounts 529 Rewards Visa and Bright Directions 529 Rewards Visa is an option. The cards offer 1.529 percent rewards that are automatically invested each quarter into the designated account once the cardholder has accumulated $50 in rewards.
Schulz of CreditCards.com says the interest rate is strong and the cash-back rate is competitive, but prospective cardholders should be aware the annual fee will cut into rewards cash.
The Upromise MasterCard issued by Barclaycard allows members of the rebate program Upromise to earn 5 percent on eligible purchases through participating retailers on Upromise.com, and provides varying returns on other purchases. Its rewards program is more complicated, but can be linked to most 529 accounts -- and Upromise account earnings can also be used to pay down eligible student loans.
"If you're someone who doesn't want to think about it and just wants to get 2 percent back on everything, then this may not be the card for you," Schulz says. "But if you're willing to pay attention, you can do pretty well with it."
As with any credit card, it's important for customers to pay back their balance every month and to read the terms and conditions, looking at annual fees, caps and interest rates, Schulz says.
"Job No. 1 is to pay the balance back every month in full," he says. "The math starts to work against you pretty quickly if you don't."
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
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