I agree with the suggestions for a 529 plan or buying prepaid tuition. Check your state treasurer's web site for details. Both plans have options if the child doesn't want to go to school or doesn't want to attend a state school. If the child dies or something happens where they don't want to or can't attend school, the 529 can be transferred to another family member. Pick out some low-cost and conservative mutual funds, expect around a 7-8% rate of return. Way better than a savings account or a CD. I agree that $7k for a 3 yr old is a lot of savings. I averaged around $200-$300 per year for birthdays and christmas. In HS I used the savings to buy a computer for homework.