September 29, 2010

Fidelity Adds Bank-Deposit Program for 529s, as Vanguard Cuts 529 Costs

Fidelity is introducing a bank-deposit program designed to preserve the principal of five 529 plans, and Vanguard it reducing the expense ratios of its 529 college savings plan in Nevada

Fidelity rolled out a bank-deposit program designed to preserve the principal of five 529 plans on Tuesday, as Vanguard said it was reducing the expense ratios of its 529 college savings plan in Nevada by nearly half on some portfolios.

Fidelity said it is introducing a bank-deposit portfolio for five direct-sold 529 college savings plans: New Hampshire's UNIQUE College Investing Plan, California's ScholarShare College Savings Plan, Massachusetts' U.Fund College Investing Plan, the Delaware College Investment Plan and the Fidelity Arizona College Savings Plan.

According to Fidelity, the Bank Deposit Portfolio is comprised of a deposit into an FDIC-insured, interest-bearing, negotiable order of withdrawal (NOW) account with the rate of return indexed to the federal funds effective rate.

"With more families saving for college, we see a wider range of investment preferences," said Joe Ciccariello, vice president of Fidelity Investments for college planning, in a press release. "The addition of the Bank Deposit Portfolio offers an additional investment option that may help meet the needs of a larger group of investors."

In addition to the new Bank Deposit Portfolio, Fidelity says that it also offers other conservative options for 529 investors including the Conservative Portfolio and the Index Conservative Portfolio, comprised of money market, short term and other fixed-income investments, and the Money Market Portfolio, which invests primarily in short-term debt obligations such as U.S. Treasury bills and certificates of deposit.

"While the vast majority of our participants continue to look to Fidelity to help guide their investments through our popular age-based portfolios, some investors are looking for a broader range of conservative investment options with FDIC insurance," Ciccariello explained.

For its part, Vanguard says that some 100,000 clients may benefit from an estimated $8.5 million in annual savings as it cuts costs on its plan in Nevada.

Those invested in one of the plan's three age-based options will see costs reduced from 0.44% (or $4.40 per $1,000 invested) to 0.25% (or $2.50 per $1,000 invested), while those invested in one of the plan's 19 individual portfolios will see costs dropped from between 0.44% and 0.66% ($4.40-$6.60 per $1,000 invested) to between 0.25% and 0.55% (or $2.50-$5.50 per $1,000 invested).

"It's important to keep investment costs low in your college savings plan, as every dollar lost to expenses puts you a dollar further from your college savings goals," said Vanguard Chairman and CEO Bill McNabb in a statement.

As assets in the $4.5 billion Vanguard 529 Plan in Nevada have increased, Vanguard says it has worked with the state and program manager Upromise Investments to deliver cost savings to plan investors. This is the fifth time that clients have seen costs reduced since the plan was introduced in 2004.

Most recently, Vanguard partnered with College Savings Iowa to reduce its plan expenses by one-third. Also, in August, New York's 529 Direct Plan cut its expense ratios nearly in half.

Read about Vanguard passing Fidelity in assets managed in AdvisorOne.com.

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