DD wants to travel in 5 years, where to invest her savings?

[MrsRoos]

Our DD is in 8th grade now and would like to take a year off and travel the world upon graduating from high school, before she goes to college. She recently received some Xmas gift money from family (small amount, ~$200) to start her travel fund and she will be adding to this fund in the near and distant future with a job, gift money, her own savings etc. Since we have ~ 5 years, where should we open an account for her to make this money grow?

[Gill]

A bank savings account is probably your only choice with $200.
Gill

[dailybagel]

I'm not sure what "DD" means, but a savings account seems like the right choice.

I would think of it this way: if you compare a savings account earning 1% with a hypothetical investment returning 5% and with the risk of loss, the difference in interest/returns is so small: $2 versus $10 (plus risk of loss).

If the extra $8 is important, it's far easier to work an extra hour over the course of the year, or forego two lattes, and have a simple, risk-free savings vehicle.

[dratkinson]

Idea. A 529 plan is to save for education expenses. If education were (example) a foreign language immersion course run by US college in which student spends a summer overseas, could maybe use that to travel on the invested education-dime.

Recall hearing of this idea being used by retired adults who want to travel in conjunction with their desire for continuing education: foreign language, archeology, art history, music,.... Need then becomes to find a US school that has a foreign program that supports their education/travel goals.


Otherwise, bank savings/CDs would seem to be easiest route to save. Can check bankrate.com for banks offering highest savings/CD interest.

[richardglm]

High yield online savings account, at least 1% rate, or series I savings bond from Treasury Direct, or both.

People dislike Treasury Direct as a website/system (you have to have patience) but honestly I-bonds are good situations like this: free from state tax, federal tax deferred until redemption, inflation linked, decent variable rate, $25 minimum purchase.

Downsides of I-bonds: mandatory minimum 1 year holding (so stop buying at age 17 for redemption at age 18), forfeit 3 months interest if redeemed within 5 years (a relatively small penalty), variable rate (currently 2.76%, but can easily drop fast below the 1% you get from online savings) complex to use website.

[jmetsrule]

Start with an Ally bank account earning 1% and then maybe after a year's worth of savings start building some Ally 11-month, no-penalty CDs earning 1.25% to get a little bit more.

But, for some people, chasing the .25% is not worth the hassle. It's probably easier to just let it sit in the Ally bank account.