By: Eva Sadej
Blueleaf’s position: All American families can get a stable 5.00% guaranteed return with the Ohio CollegeAdvantage 529 Plan Fifth Third CD, as long as you have a ten year or longer time horizon. This is the best risk/reward option in the country out of the limited 529 plan options.
The safest 529 college investment vehicle is a CD. All 529 college savings plans are tax-advantaged and contributions and earnings are able to grow tax-deferred, including CDs. With the way many mutual funds have performed in the last few years, a guaranteed return and FDIC-insured principal can be a very attractive part of the asset mix in your 529 plans.
What is the Ohio CollegeAdvantage 529 Fifth Third CD?
The Ohio Advantage 529 Fifth Third CD is an FDIC-insured certificate of deposit with all the tax benefits of 529 portfolio plans but with absolutely no fees and a guaranteed annual percentage yield of 5% on 10-year CDs. The Ohio CollegeAdvantage 529 Plan is a portfolio plan offered by the Ohio Tuition Trust Authority including 38 mutual and index funds, a savings account, and CDs with maturities ranging from 3 months to 12 years offered in conjunction with Fifth Third Bank headquartered in Ohio. Opening an Ohio CollegeAdvantage 529 Plan is available to any U.S. resident for a minimum opening balance of $500 per month. 
With an Ohio Advantage 529 Fifth Third CD, you are guaranteed the following returns with no fees or taxes to erode your investment: 
|3–5 Month CD||0.30%|
|6–11 Month CD||0.50%|
|12–23 Month CD (1 to 2 years)||1.25%|
|24–35 Month CD (2 to 3 years)||1.75%|
|36–47 Month CD (3 to 4 years)||2.50%|
|48–59 Month CD (4 to 5 years)||3.25%|
|60–83 Month CD (5 to 7 years)||3.50%|
|84–119 Month CD (7 to 10 years)||4.25%|
|120–143 Month CD (10 to 12 years)||5.00%|
|144 Month CD (12 years)||5.00%|
It is obviously most beneficial to open a Fifth Third CD when your child is at least ten years away from college and take advantage of the guaranteed 5% return and compounding for a full decade. If your child is more than ten years away from college enrollment, you can purchase a 12-year CD and then another CD at maturity for the appropriate remaining length of time.
What makes a 529 CD plan better (and safer) than a portfolio or prepaid plan?
No Sales Charges, Management Fees, or Enrollment Fees.
Choosing a CD allows you to bypass any sales charges, annual management fees, or enrollment fees that can substantially erode your college investment. Initial or deferred sales charges on 529 portfolio plans can be as high as 5.75% and total annual asset based charges as high as 2.43%. With a CD plan, you pay nothing annually or initially.
FDIC-Insurance of Principal.
You are guaranteed to get back every dollar that you put into a CD by the FDIC plus a minimum return. While other investment options, such as stock and bond funds, may offer higher potential returns, they also have the risk of loss that an FDIC-insured CD does not.
Maturity of CD not an issue.
The downside of a CD versus a traditional savings or investment account is that you cannot touch the money you put in for the duration of the CD without paying a high penalty. However, this shouldn’t be an issue, as all 529 plan funds cannot be withdrawn early without incurring a 10% federal penalty. You would only withdraw these funds once your child enters college anyway and you can just as easily choose a CD that matures at your child’s projected enrollment year. For the Ohio CollegeAdvantage 529 Fifth Third CD, the penalty for withdrawing funds prior to maturity date is equal to the greater of one-half of the interest for the unexpired term of the CD; or for 529 CDs of 3-11 months, an amount equal to three months of interest; or for 529 CDs of 12-144 months, an amount equal to six months of interest.
Account balance can be used for tuition and all qualified higher education expenses.
In contrast to a Prepaid Tuition plans (offered in ten states with residency requirements), the funds from a CD 529 Plan can be used for all qualified higher education expenses: tuition, room and board, books, laptops, college health care plans, and so on.
The one major drawback of the CollegeAdvantage 529 Fifth Third CD is that there is no monthly contribution plan for a CD. You cannot have automatic payroll deductions of $25/month like you can have with equity portfolio 529 college savings plans. However, as long as you hit the minimum contribution amount, you can just open a new CD each time you want to contribute a lump sum. There are absolutely no enrollment fees or sales charges involved. For advice on how to transfer all these various CDs into one account (and corroboration of our viewpoint that this is the best 529 investment option), read this article: https://cashmoneylife.com/2010/07/21/transfer-college-advantage-529-savings-plan/
In addition, investments in 529 plans are only shielded from federal taxes; you may have to pay state taxes on out-of-state 529 plan investments, which would include the Ohio CollegeAdvantage 529 Fifth Third CD. If you are in a location with high local tax rates, such as New York City (where the combined state and city tax rates approach 10%), your returns will be reduced. While this is a note about out-of-state 529 plan options in general, make sure you do compare the CollegeAdvantage CD to your in-state offerings.
Don’t other 529 Plans offer CDs?
The Ohio Advantage 529 Plan is not the only 529 plan that offers a CD option. In addition, 529 CDs are offered by the Arizona Family College Savings Program and the Montana Family Education Savings Program, and these too are open to any U.S. citizen or resident alien. Let’s go over these three options and look at just why the Ohio Advantage 529 Fifth Third CD ranks supreme.
1) Arizona/Montana CollegeSure CD: Great, until you look at the margin
Offered by the College Savings Bank in both Arizona and Montana, the interest rate on this FDIC-Insured CD is pegged to the private-college tuition index (5-7% annually) as measured by the College Board’s Independent College 500® (IC 500). For the last 25 years, the annual college inflation rate has ranged from a high of 14.35% to a low of 4.25% . College tuition inflation has remained high and fairly consistent at an average of 5.25% in the last 10 years, nearly twice the average rate of general inflation since that time .
The CollegeSure CD is essentially a (very safe) bet that college tuition will continue to rise, as it has for decades. This all sounds great until you realize that your returns are the growth rate of the IC 500 less a 3% margin. The margin is easier to swallow when you realize no real returns are being created for the College Savings Bank. The 3% margin just protects the College Savings Bank in case tuition inflation does peak to 14% a year inflation again. They won’t be getting that 3% anywhere; they just won’t be paying you that amount.
Subtract the 3% margin from 5.25% and you get an average annual return of 2.25% per year. An annual return of 2.25% once you take out fees is not miraculous, but it is significantly better than many other College 529 portfolio plans have performed within the last few years.
The CollegeSure CD is offered as just one of a number of available 529 investment options from Arizona and Montana. Opening a CollegeSure CD does not require residency in either state; it is available to any U.S. resident for a minimum contribution of $250 and $100 per month. CollegeSure CDs have maturities ranging from three to 22 years. Contributions are accepted until the account balance of all Arizona 529 plans in the beneficiary’s name reach $340,000 and contributions per year are uncapped. 
The CollegeSure CD features a minimum annual rate of return of 2.00%. As of today, the highest return on a non-529 plan 3 year CD has a 2.37% APY.
|Annual Return (including fees)||2.00%||2.20%||2.50%||2.77%||2.35%||2.62%||2.74%||3.02%||2.49%||2.0%|
The pitfall of the CollegeSure 529 Plan is that no matter how long a maturity date the CD you sign up for, your return, on average, will be no more than 3.5% versus the 5% you can yield on the Ohio Advantage 529 Fifth Third CD.
2) Arizona/Montana InvestorSure CD: Not as good and more volatile
Offered by the College Savings Bank in both Arizona and Montana, the InvestorSure CD has a five-year maturity, and earns interest tied to a percentage of the increase in the S&P 500 Index (between 85% and 100%). Since it has only been offered from February 1, 2008, the following chart shows hypothetical annual returns. The InvestorSure CD has no margin. Returns in recent years have slightly lower than those that could have been earned from a Ohio Advantage 529 Fifth Third CD and highly volatile.  In contrast to the returns below, the Ohio Advantage 529 Fifth Third CD earns a guaranteed 4.25% on 5-year CDs.
|InvestorSure CD Issue Date||Maturity Date||85% Upside Payment (APY)|
|May 2, 2005||May 3, 2010||0.94%|
|February 1, 2005||February 1, 2010||0.65%|
|November 1, 2004||November 2, 2009||1.44%|
|August 2, 2004||August 3, 2009||2.06%|
|May 3, 2004||May 4, 2009||1.72%|
|February 2, 2004||February 2, 2009||1.81%|
|November 3, 2003||November 3, 2008||3.33%|
|August 1,2003||August 1, 2008||4.47%|
|May 3, 2003||May 4, 2008||5.71%|
|February 2, 2003||February 2, 2008||6.43%|
|November 3, 2002||November 3, 2007||5.66%|
|August 1,2002||August 1, 2007||4.85%|
|May 1, 2002||May 1, 2007||1.08%|
|February 1, 2002||February 1, 2007||0.43%|
|November 1, 2001||November 1, 2006||0.54%|
|November 2, 1998||November 3,2003||1.74%|
|August 1, 1998||August 1, 2003||0.85%|
|May 1, 1998||May 1, 2003||1.58%|
|February 1, 1998||February 1, 2003||3.56%|
|November 1, 1997||November 1, 2002||4.79%|
|August 1, 1997||August 1, 2002||4.36%|
|May 1, 1997||May 1, 2002||8.15%|
|February 1, 1997||February 1, 2002||7.92%|
|November 1, 1996||November 1, 2001||9.54%|
|August 1, 1996||August 1, 2001||11.35%|
|May 1, 1996||May 1, 2001||10.08%|
|February 1, 1996||February 1, 2001||10.51%|
|November 1, 1995||November 1, 2000||11.24%|
|August 1, 1995||August 1, 2000||10.97%|
3) Arizona Fixed Rate CD: Low returns
The 529 Fixed Rate CD is offered by Arizona Family College Savings Program (the Montana plan does not offer it). It includes CDs with maturities of one and three years at fixed interest rates, below . The return rates offered by the 529 FixedRate CD are lower than those offered by the Ohio CollegeAdvantage 529 Fifth Third CD.
|Fixed Rate CD Term||APY||Minimum Deposit|
|1 year (regular)||0.75%||$500|
|3 year (regular)||1.85%||$500|
|1 year (large)||0.80%||$10,000|
|3 year (large)||1.90%||$10,000|
If you are investing for a longer time horizon than a decade and would like the opportunity (and are willing to bear the risk) to generate higher returns, open a traditional 529 portfolio plan with stocks, bonds, mutual funds, and index funds in addition to the CollegeAdvantage Fifth Third CD.