Money Talks, So Should You

Why two savings accounts are better than one

One for college, one that can be raided to pay for football tickets.

Brian O'Connell
by Brian O'Connell, MainStreet contributor

NEW YORK (MainStreet) — Call it a tale of two saving accounts.

A study of the college savings patterns of Illinois parents says 58 percent only have one savings account, or none at all.

The study, by Bright Start College Savings, a Springfield, Ill.-based college savings program sponsored by the state of Illinois, says parents would do well to have multiple savings accounts — one earmarked for college savings and another for entertainment or living expenses.

READ: Three tips to use in your search for college funding

The idea is that two active savings accounts will drive consumers to save more — not less — and that bank savers who have only one account (or worse, none) actually save less money.

How so?

Bright Start offers up a scenario where having just one savings account makes it hard to resist raiding that account for things such as football tickets or a family vacation. By keeping a college saving account separate, the group says, parents can better manage short-term and long-term financial goals.

“Certainly, many parents with children aren’t in a position to save a lot of money for expenses far in the future,” explains college savings industry consultant Andrea Feirstein, a managing director at New York-based AKF Consulting Group. “But they should make an effort to save whatever they can, and to split their savings into different buckets.”

READ: Q&A: How should I save for my child's college fund?

There is one major rule with the “two savings account” plan: One of those accounts has to be for college planning, at least for the 97 percent of parents who want to send their children to college, Bright Start says. The benefits are ample, the group reports, with tax savings and a big head start on paying for college at the top of the list. Savings fund that are clearly targeted to collegiate savings stand a better chance of being left alone, and not be raided by cash-needy parents.

Parents can’t afford to skip opening a college savings account, BrightStart officials report.

"With many financial planners warning against burdensome student loans — that can take years to pay off and lessen the return on a college diploma — finding alternative ways to pay for college becomes crucial for parents and prospective students,” says Bridget Byron, director of college savings programs at the State of Illinois Treasurer's Office.

READ: Q&A: Are online colleges cheaper?

Bright Start says that even “small changes” can lead to big savings. For example, bringing your lunch to work can mean an extra $50 in a savings account. Instead of teddy bears and video games for the kids’ birthdays, ask family and friends to make a cash donation to their college savings.

Creative parents can launch a “matching” program in which they match, dollar to dollar, any money put into a child’s savings account by a family member, friend or even the child.

There is one downside to the savings angle, whether you open one or more accounts. According to BankingMyWay.com, bank savings rates remain in the gutter, offering a paltry 0.081 percent in interest this week.

So don’t expect to earn much interest on your savings accounts.

Past that sour note, the idea is an intriguing one.

Brian O’Connell has 15 years of experience covering business news and trends, particularly in the financial, health care and career management sectors. He has written 14 books and appeared on CNN, Fox News, CNBC, C-Span, Bloomberg, CBS Radio and other media outlets and in such publications as The Wall Street Journal and The Street.com. He is a former Wall Street bond trader.