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New option for college savings in North Carolina

The state's National College Savings Program is offering a new way to save for college.

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Sarah Lindenfeld Hall

There's a new way to save for college that might be especially appealing to grandparents or parents with kids about to graduate from high school.

The new Federally-Insured Deposit Account, which launched this week, is an addition to the NC 529 Plan. It protects the principal and earnings and provides an interest rate of 2.5 percent and federal deposit insurance.

The other options in the state's 529 plan are mutual funds, which range from conservative to more risk-taking investments. But only the new investment option is guaranteed. Contributions and interest earned with the accounts are guaranteed by the State Employees' Credit Union and are insured by the National Credit Union Administration.

In other words, you won't lose any money if the market takes another dive.

Ben Kittner, spokesman for the College Foundation of North Carolina, said other states have been offering these more conservative accounts as a result of the recession.

"The trade-off is that it's a conservative investment," Kittner said. The current interest rate for the account is 2.5 percent. That can go up or down over time.

It's worth noting that the Dow closed above 11,000 for the first time in 18 months on Monday. But Kittner said there are still plenty of reasons why people would want a more conservative account even if the Dow's move continues.

"I think especially if you've been saving already through another type of investment option and your kids are juniors in high school or so, you might want to ensure the money is going to be there and you might want to put it in a more conservative account," he said. "As your kids get older, this might be something that you might want to consider moving the money into when it's time to start paying the bills."

You get the same state and federal tax advantages if you invest in the new account, including tax-free withdrawals as long as the money is used for college tuition, room and board.

By the end of last month, more than 41,000 people had invested more than $584 million in the state's National College Savings Program. That's a 17 percent growth over this time last year.

For details on the new account and others offered by the College Foundation of North Carolina, click here. You can apply online.

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