Where to put college and emergency $

[Paige]

I have two kids in college and right now have 15,000 sitting in a savings account earning almost nothing. I know that my credit union will give 2.50 percent interest on checking up to 20,000.00 and the other credit union where I have a credit card (no checking yet) will give 3.00 per cent for up to 20,000. The deal is I have to use my debit card 12 times. I am afraid to put this college money in with our checking, because it could accidentally get absorbed. We are not good at tracking details. I wish I were....Another idea is to put the 14,000 in the 19 year old incredibly responsible college student's account as she would probably track it well and understand. She has few expenses and less money/bills. I don't have ANY reason to believe she would spend it. So....what would you do? Or...does anyone have any other ideas? Oh, and I have 15,000 in Emergency Savings also sitting there earning barely anything. I would love your advice!

[ApatheticNoMore]

I wouldn't give the money to the 19 year old, young adults aren't really prepared to handle windfalls (sure there are exceptions but I'm not sure I'd bank on someone being the exception).

[try2bfrugal]

A couple of consideration in giving your kids money, beside the fact that they can spend it, would be gift tax and financial aid considerations. Your student might get less financial aid with money in her name instead of yours.

Here is the IRS link on gift limits -
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes.

If you don't need the money for a year and do not want to use your rewards checking accounts you might consider I bonds. Your rewards checking rates will be higher right now but those accounts also make it easier to spend the money.
http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

We aren't keeping much in our rewards checking right now because even though the rate is higher than we can get elsewhere the one we have uses debit cards and I think those are a bit risky compared to credit cards.

[RosieTR]

For the emergency fund, some sort of bond like T2BF recommended would work well. Ideally the EF is something relatively liquid but something you'd have to think a fair bit about before spending. For some, a savings account is fine but for others it's better as something completely separate from their day-to-day funds. We have a few different bits scattered, sort of like an emergency fund, then and emergency-emergency fund. The first might be if we had to buy a car on short notice or something, the next if someone had a big health care problem or something.
As for the college thing, even if your 19 yo is pretty responsible, it sounds like a bad idea to put the money in her account. There are tax issues, student assistance issues and even identity theft issues. For example, is she in a dorm or have roommates? Even if the roommates are fine, what about their other friends/boyfriends/study partners? Identity theft is a whole lot easier in situations like dorms and shared apartments. I would worry less about earning interest on the college $ since you'll be using it very shortly. With that amount of $ you could open a separate account for the duration while they're in school, then close the account after graduation, if you're concerned about that money getting mixed in with your general household funds. Another option is a set of CDs that mature each semester (so like 6 mo, 12 mo, 18 mo etc) to generate the funds. This would have the added benefit of metering out the money and with giving you more interest on the longer term $ which would make a bigger difference in the total earnings anyway.

[ToomuchStuff]

First, where do you get such high percentages? One percent would be a lot around here right now. Secondly, what is stopping you from opening a new account (keeping separate) and then using the debit card, to cover expenses (what parts of school you will pay for) or for some small bill, where you then transfer the money from your regular account back into it (pay a utility bill 12 times, and transfer money from the household account).
I certainly wouldn't combine them if you suck at tracking (very important), nor would I put them only in her name (even a joint name causes problems listed in other posts).

[fidgiegirl]

I would also avoid giving it to her outright. I'm thinking of myself at 19. Responsible with money I had, yes, but it was very little. Once I got a hold of more, I spent it, right? Because in my mind, that's what you did with money and as fast as possible. Even if she gets it in chunks, if she makes a "mistake," it won't break her whole college education. She'll just have to limp along until the next term or month or whatever.

Like Rosie said, it's earmarked to get spent soon anyway, so I wouldn't stress about the rate. Put it somewhere that is easy and makes sense.

Toomuchstuff, I have a similar account and so does my sister. At my particular credit union, we are required to to, like the OP, use our debit card a minimum of 12 times a month, have our statements sent electronically and have a minimum of one direct deposit going into the account each month. We earn 2.5% APY on balances up to 20K. It was higher when we opened it for both rate and balance allowed. I see they changed it from $30K to $20K max (then the rate plummets on the amount above that). We have been keeping all our EF in there for a few years now because it is, like you said, paying FAR AND AWAY better than anything else out there.

[Paige]

Wow! Great thoughts, great ideas. Thank you so much for your advice. My daughter would not spend it, but the idea of identity theft, boyfriends, etc in the dorm is something I hadn't of considered. Also, the tax ramifications when applying for financial aid, etc. I will check out the ideas above and reconsider. BTW, the bank used to allow us to have unlimited checking accounts and then people picked up on the 2.5 % rates and were buying 12 packs of gum a month so they were paying out a lot, apparently. But I only have a checking account at one of the credit unions I belong to. One I still have a credit card from but no checking so I may start one there. It wouldn't get mixed into my regular account (which we do "suck" at). Thanks everyone!