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The importance of costs

The money you pay to invest has a big effect on what you have left to pay for college. Keep as much as you can.

Understand what you're paying

Make no mistake about it—every investment has a cost, even if you don't realize you're paying it.

Investments in 529 savings plans have an expense ratio, just like mutual funds: A percentage of the amount in your account is deducted from your returns to cover the portfolio's costs.

Why do costs matter?

These costs might not seem like a big deal, but they add up, compounding along with your investments.

Imagine you have $10,000 to invest for college and you leave it in an account for 18 years. If the account earned 6% a year and had no costs or fees, you'd end up with about $28,500.

If, on the other hand, you paid 2% a year in costs—a measly 2%!—your account balance at the end of 18 years would be about $19,800.

That's right: The 2% you paid every year would wipe out almost one-third of your final account value.

Costs can erode your savings

Bar chart depicting how much less your balance could be if you paid 2% in costs versus no costs.

This hypothetical illustration does not represent any particular investment nor does it account for inflation. "What you lose to costs" represents both the amount paid in expenses as well as the "opportunity costs" the amount you lose because the costs you paid are no longer invested. There may be other material differences between investment products that must be considered prior to investing. Numbers are rounded. The rate of return is not guaranteed.

What can you do?

You can easily find good investment options that charge only tenths of a percentage point in fees. It seems obvious, but it bears stating: You want to pay as little as possible in costs and keep as much as possible in your account to pay for college.

Keep more with Vanguard

We've long been recognized as a leader in the financial industry when it comes to low costs. In fact, our overall average expense ratio is 82% less than the industry's average.* We're passionate about our mission to be the best place to invest for college or any other goal.

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Expense ratio

Fees charged to investors to cover operating costs, expressed as a percentage. The money is deducted from investment returns before they're given to investors. For example, if you had $10,000 invested in a portfolio with an expense ratio of 0.20%, you'd pay about $20 a year out of your investment returns.