Most economists expect college tuition and related costs to grow much faster than the overall cost of living. Some investment counselors are advising their clients that they will have to save $2,000 - $4,000 per year from the child’s birth to afford a moderately priced college.

Among the most popular products that investors are using to finance a college education are:

Growth stock or growth stock funds
These investments are made in companies that generally pay low or no dividends. These investments can generate sizeable returns, but are very volatile.

Zero coupon bonds or bond funds
Zero coupon Treasury bonds are backed by the U.S. Treasury and are less risky investments than stocks. Zero coupon bonds cost less than their face value. They do not pay interest during the life of the bond. When the bond matures (at the time the child is ready for college) the investor collects the face value of the bond.

529 plans (check specific guidelines for your state)
Allows investors in many states to put after-tax contributions into an investment plan run by a team of directors. Typically, funds are invested in a combination of stocks, bonds, mutual funds, and CDs. Earnings in many states are tax-free as long as the money is kept in the plan or used for educational purposes.

U.S. savings bonds
Issued by the U.S. government, these bonds pay a low interest rate based on the interest paid on five-year U.S. Treasury notes. Such investments are tax-free if they are cashed in the year tuition is paid.

Coverdell Education Savings Account
Families may deposit up to $2,000 a year in this form of tax-free college account. Unlike 529 accounts, the Coverdell’s tax-free status will extend beyond the year 2011. Another distinction of a Coverdell, compared with the 529, is that the individual makes the choice of investments, not the directors of the plan.