There s a new front opening up in the ongoing price war among financial-services firms: college savings plans.

Over the summer, T. Rowe Price cut its annual account fee on 529 savings plans by 20 percent to $20 and also reduced its annual management fee to $20 (from $28) for every $10,000 invested in all its plans. Vanguard, which has more than $27 billion worth of assets in 529 plans, slashed fees on a slew of investment options in a Missouri plan after cutting fees in other states late last year. The largest 529 plan provider, American Funds, hasn t lowered prices for two years ( We believe our fees are already at rock bottom, a spokesperson says), but other firms, including AllianceBernstein and TIAA-CREF, have said they intend to lower 529 plan fees later this year. These moves might sound tiny, but the fee cuts could add up to several hundred dollars in savings over the life of a 529 plan, which lets savings set aside for college expenses grow tax-free.

To be sure, the plan providers aren t sacrificing fees on 529 plans just to make it cheaper to send your kid to Harvard. According to Financial Research Corp., an industry research group, there were more than $120 billion in assets in 529 plans nationwide as of this spring. As the money piles up, plan providers can lower their fees without denting their profits, says Greg Brown, lead analyst for 529 plans at Morningstar. At the same time, states are forcing providers to lower their fees when the contracts with 529 plan providers come up for renewal. It s become evident to states that the consumer is shopping around from state plan to state plan, says Deborah Fox, founder of the financial-planning firm Fox College Funding.

The fee cuts are welcome, but analysts suggest looking beyond price when choosing a plan. Many states offer tax incentives to in-state residents that could offset the savings from investing in a lower-cost out-of-state plan. Plus, 529 plans might not be worth starting if the child is in or near college, says Tom Arconti, a Danbury, Conn., fee-only adviser who specializes in college planning. Parents would want a 529 to be heavily tilted toward conservative investments, such as money-market funds, and these days their yields are near zero, making it hardly worth the effort.