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College Savings Reward Plans - Making Them Work for You by: Tim Paul You are probably well aware that college costs are soaring and that the need for parents to build college savings has never been greater. You may also be aware of various loyalty reward programs (such as Upromise and BabyMint) that pledge to help build your college savings by paying back a small percentage of the amount you spend using their credit card and/or buying certain products. Companies offer these programs because, in the aggregate, they know they will lead to higher spending on their products or services. Smart consumers learn to maximize earned rewards without altering their spending habits. Reward programs can help build college savings. That's the good news. The bad news is that these programs have grown in number and become very complex. It is very difficult for parents to take time to fully understand, compare and select the program best suited for them. This article aims to cut through the morass and lay out a clear strategy for parents to follow to get the most from college reward programs. The Basics The various college savings reward programs fall into two broad categories: credit card rewards and savings clubs. The distinction gets blurry because many of the 'savings club' programs also sponsor a credit card under the same name. Nonetheless, you can better understand and optimize your use of the programs if you categorize them in this manner: A college savings reward credit card is a regular MasterCard or Visa card that - in lieu of frequent flier miles or cash back bonuses - makes a 1% or 2% contribution to a college savings account based on purchases made with the card. A savings club (or loyalty program), on the other hand, is a membership club through which a network of merchants offers members special rebates for buying their products or services. Rebates are directed to the member's college savings account. Some savings clubs have membership fees or require that you have their affiliated credit card to be a member. Others are free and permit the use of non-affiliated credit cards. College Rewards Credit Card Associated Savings Club BabyMint College Credit Card Baby mint Baby Center Credit Card Baby Center Savings Program Being Developed edexpress Fidelity/MBNA College Rewards NONE futuretrust Credit Card futuretrust Savingforcollege Credit Card NONE The Education Plan Credit Card The Education Plan Citi Upromise Card Upromise Optimizing Rewards A few of the college savings clubs require that you have their branded credit card to participate in the savings club. We suggest you avoid these programs in favor of a 'best-of-breed' strategy that lets you pair the best rewards credit card with the best savings clubs. Here's a five-point strategy that can help you maximize college reward earnings: Select the College Rewards Credit Card Paying the Highest Rebate on All Purchases - Typically, credit card rewards will generate greater college savings than the savings club programs. This is simply because the rebate (1% or 2%) is paid on the value of all purchases made with the card (subject to the card's limits). Savings club rebates, on the other hand, are paid only on the value of purchases from specified participating merchants (although often at higher rates than the credit cards). Most of the college reward credit cards - pay a 1% rebate. The sole exception is the Fidelity/MBNA College Rewards MasterCard that pays 2% (up to $'1
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