How to save for your child's education
Content supplied by Barclays
With costs escalating, Barclays reveals some of the different ways you can save and plan ahead
How to save for your child's education
Let's face it, there's not much more important than giving your child a good education. It's the springboard to the rest of their life, after all. But when did it all get so expensive? All those school trips, uniforms, lunches and travel soon add up. Even a simple 'back to school' kit of basics like sportswear, stationery and a schoolbag for a primary school child costs an average £961 a year. And then there's university to worry about.
It can seem a bottomless pit, but with a bit of forward planning and some clever saving, it really is possible to save enough to see them through to graduation. Here are some of your options:
Start an ISA
Everything seems to cost money these days - even saving money. That's why ISAs are such a good choice - you can stash away up to £5,340 a year without paying a penny's tax on what you save. And considering how all those little school extras add up, every penny counts.
Your simplest option is an instant access cash ISA, which you can open with as little as £1, then add to it in whatever instalments you can until you reach your limit for the year (the 2011/2012 tax year started on 6th April 2011). Your money earns tax-free interest (ie interest paid free of UK income tax subject to ISA conditions being met) and you can access it whenever you need.
You just have to be 16 or over and resident in the UK to qualify. However, it's worth noting that if you take money out, you can't pay it back in once you've reached your annual limit on deposits. (You have to be 16 or over and resident or ordinarily resident in the UK to open a cash ISA.)
If you've got a bit more time before your child starts school - or if you already have a cash ISA - you might want to consider an investment ISA instead. Designed to be held for between five and 10 years, these may generate greater returns than money held in cash savings. However, there is an element of risk due to exposure to the stock market. The value of your investment and any income that may be produced may fluctuate over time and you may not get back as much as you put in so think carefully about the level of risk you're willing to take.
Eligibility for ISAs and the value of tax relief within them depend on your circumstances and the rules around ISAs could change in the future.
Find out more about the different ISA options and how to set one up.
Think about bonds
A good way to dip your toe into long term savings is with a bond. A fixed rate bond offers a guaranteed fixed rate of interest for the term of the bond. Whilst with a Flexible Bond offered by Barclays you get the security of a guaranteed rate of interest along with the peace of mind that you can access some of your money if you need it.
Before deciding where to save, find out more about bonds and other savings options.
ISAs are a great way of ring-fencing savings for your child's future. But with a recent study finding that, even in the state sector, the 'extras' for each child's secondary education can cost £1,000 a year2, it's vital to max every pound. So if you are comfortable with a degree of risk, you could consider investments, which usually over the long term perform better than savings.
But before leaping in, you need to work out how soon you'll likely to want to start drawing on the funds. Investments should always be made with a time horizon of five to 10 years in mind, so if your child's still toddling, it could be a great way of financing them through those expensive secondary school years.
It's important to note though that the difference between savings and investments is that with investments you could get back less than you started with. Also, the value of investments will fluctuate, so again, think carefully about the level of risk and potential reward you're comfortable with before investing.
If you're ready to have a look at some investment options or want to learn about the key aspects of investing, head to the Barclays Investor Zone.
If you're not comfortable with making your own investment options, you should speak to an Independent Financial Adviser.
Make it monthly
If you've used up your ISA allowance, and aren't ready to take the leap with investments, there's still the option of a good, old-fashioned savings account. By contributing regularly throughout the year, you'll soon notice a nice little sum mounting up to put towards those 'back to school' expenses come September. You can set up a standing order so the money comes out of your account on the same day each month, removing the temptation to spend it on anything else.
Even better, if you can leave the money untouched for a set period, you'll get rewarded with a higher level of interest. With a monthly savings account from Barclays, for example, you can contribute between £20 and £250 by standing order each month and for every month you don't make a withdrawal, you get a better interest rate. You still get instant access to your money and if one month you can't pay in the usual amount, you can adjust your standing order at any time.
Build a university fund
Sadly the days of packing them off to university with little more than a recipe book for baked beans are long gone, so the earlier you can start saving for their student days, the better. The good news is there are a few options that lock money away until your child reaches 18 - perfect for making sure there's a ring-fenced pot when the big day finally arrives.
For example, if your child was born in the UK between 1 September 2002 and 2 January 2011, you could opt for a Child Trust Fund. If you received child benefit for at least one day before 4 January 2011, you would have been eligible for a Child Trust Fund Voucher (worth £250 - £500 depending on your circumstances), which you can use to set up the tax-free Fund. The scheme has since ended, and any child born after 2 January 2011 is no longer eligible but if your child was born prior to that date and you missed out, check to see if you can request a replacement.
Once you've set up the Fund, you and any relatives and friends can add up to £1,200 a year. This money will then be tied up until they are 18. If you're not sure whether your child is eligible, ring the Child Trust Fund helpline on 0845 302 1470.
Another option is a basic children's saving account, set up in your child's name. Many only need £1 as a minimum deposit and as you control the account until your child is 18, you know the money is secure. You can keep adding as much as you want but it's tax-free only up to £100 interest, per parent or step-parent and a R85 from HMRC has to be submitted to your bank. If sums are only given by a parent and your child earns more than £100 interest, the whole lot is taxed at the parent's rate (this applies separately to each parent).
If you want to start saving for your child's education, Barclays can help you weigh up your options.
See how other mums have set about saving for their kids' education in our videos at Barclays on Mumsnet.
Head to Barclays on Mumsnet for lots more:
- Expert information on starting your own business
- Family budgeting and saving tips
- Money-saving videos and inspiring start-up videos
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