As states compete with each other to bring in 529 money for college education they have begun to add features. The latest addition is to allow savers to buy CDs (Certificates of Deposit) in their 529 account. The FDIC decided in 2005 to insure each person's CDs for up to $100,000. Consumer interest grew and states started adding the feature.
Currently the following states offer CDs in 529 accounts: Ohio, Missouri, Wisconsin and Virginia. I'm sure there will be more states soon.
Because the CDs are in a 529 account the interest is tax free as long as it is eventually used for higher education purposes like tuition and books.
This feature will mostly be attractive to conservative investors who do not like to experience volatility in there investments, or for those that have just a few years left until the investments will be used and they want to lock in and preserve current gains in the account.
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