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Wouldn't it be great to set aside money for college simply by buying things you would have purchased anyway? That's the premise behind three Web sites that rebate a small percentage of your online and offline purchases from retail partners such as Toys `R' Us, General Motors, and Haagen-Dazs into savings accounts you can use for college costs. Alone, the plans, which go by the names Upromise, BabyMint, and EdExpress, won't put your kid through school. But as a supplement to college savings, they can provide a boost.
Most vendors in these plans will rebate 1% to 3% of your purchases, and a few will go higher. According to a calculator on babymint.com, if you spend $200 a month with BabyMint partners, in eight years, the rebates can grow to $1,300--provided the money is in an account that returns 8% annually. Upromise and EdExpress boast comparable results.
The private companies behind these sites--which have increased membership fivefold since December, 2000, to 250,000 today, according to TowerGroup analyst Gavin Little-Gill--make money in similar ways. Upromise and BabyMint take a slice of each rebate you get, while EdExpress charges $19.95 a year. Upromise and EdExpress hold users' rebate money in accounts. Upromise keeps the interest earned, but EdExpress lets you keep the earnings. BabyMint assigns points to rebates such as frequent-flier miles, paying out the cash equivalent to the subscriber each month.
Upromise members can funnel money from their accounts each quarter directly into Section 529 college-savings plans managed by Fidelity Investments and Salomon Smith Barney. EdExpress participants must use their rebates for education costs--such as tuition, scholarship funds, or textbooks--or the Internal Revenue Service will tax the money. BabyMint automatically dumps monthly rebates into any savings vehicle a user specifies, whether for college or not.
After signing up at the respective Web sites, you can shop online by clicking on the vendor links. EdExpress and Upromise let you do business at stores as well. To track purchases at those partner outlets, you must register your credit card with the Web sites. Then, when a salesperson swipes the card, Upromise or EdExpress receives notification of your purchase. You don't have to register any credit cards with BabyMint. It offers rebates primarily through online vendors, though the site features coupons you can print out and use offline.
Once you're registered, accumulating rebates is easy: Just buy stuff. But there are downsides. In signing up for the programs, you've agreed to have your spending habits tracked--though all three companies point out that privacy policies prohibit the release of personally identifying information, such as your credit card number. Securities Investor Protection Corp. insures Upromise accounts, while EdExpress accounts are managed by Bank One and are privately insured. BabyMint's points are not insured.
Users should avoid the temptation to make unnecessary purchases just to boost rebates. "People shouldn't get carried away and put their financial security at risk," says financial adviser Judy Miller of College Solutions in Alameda, Calif. For instance, the Citi Upromise Card is a Mastercard that pays you back 1% of all your purchases with that card, up to $300 a year. But to get the maximum rebate, you need to rack up $30,000 in credit-card bills. If paying off $30,000 in debt plus interest is a snap, you probably don't need that $300 college-savings rebate to begin with. By Brian Hindo