Savings Options to Help You Finance Your Child's Education
There are a wide range of savings options which can help you prepare to pay for your child’s education. The sheer volume of choices can seem overwhelming but it needn’t be. This article will give an overview of the main options available to you. Speaking to an independent financial advisor should also help you make the best decision for you and your family.
The factors which dictate which savings option or options you chose will depend on a number of factors including:
- How early you start saving.
- How much you are looking to invest.
- Your plans for your children’s education.
- How much flexibility you require with regard to withdrawing savings.
Child Trust Funds
The Child Trust Fund (CTF) is a government-subsidised savings scheme for children born after September 2002. CTFs are tax free and can only be cashed in by your child once they turn 18. Although parents can add to the CTF throughout their child’s life, they can’t withdraw any money. Parents of eligible children will receive a £250 voucher to start the CTF.
There are a number of CTF options available. Our article on Setting Up a Trust Fund for Your Child’s Education will provide you with more information.
If your child isn’t eligible for a CTF or was born before September 2002, there are other tax efficient alternatives. Individual Savings Accounts (ISAs) are tax free savings accounts, allowing you to save up to £7,000 a year. An ISA must be opened in your name as account holders must be over 18.
- Cash ISAs offer low risk saving with high interest earnings.
- Stocks and shares ISAs involve investing stocks, shares and bonds so this is a potentially more lucrative but possibly risky option.
There are a wide range of children’s savings accounts, offering competitive interest rates, available from most banks and building societies.
There is a choice of types of bank account depending on your needs, for example you can set the account up so that you child can only remove money when they turn 18 or you can open an instant access account where you can take money out and put it in as you please.
Unit and Investment Trusts
Saving via a unit trust means pooling your money with others. A financial manager invests the pool of money in potentially lucrative ways and puts the shares into a fund. You then buy units in the fund. You can then buy and sell units. The value of the units goes up or down in line with the overall value of the fund.
Investment trusts invest in the shares of different companies, therefore spreading the financial risk. Saving via a unit trust means pooling your money with others. A financial manager invests the pool of money in potentially lucrative ways and puts the shares into a fund. You then buy units in the fund. You can then buy and sell units. The value of the units goes up or down in line with the overall value of the fund.
Investment trusts invest in the shares of different companies, therefore spreading the financial risk. Investment trusts are themselves companies in which you buy shares. This means you're investing directly, whereas with unit trusts you're investing indirectly.
This article should be just the beginning of your savings research. There is a lot more to learn but the time you spend making an informed decision now is an investment in your child’s future and education.