The cost to attend university is increasing, forcing many parents to save more for the higher education of their children.
This can be difficult to do because living expenses are also escalating. With limited money to go around, families must develop a plan for higher education savings.
By planning ahead, parents ensure that their children gain the competitive edge that education provides. There are many simple ways to save enough to put a child through university.
Even saving money can cost money, a fact that makes an Individual Savings Account (ISA) even more attractive. Parents can save as much as £5,340 each year in an ISA without having to pay any tax on this money.
An instant cash ISA can be opened with as little as £1 and parents can add to the balance in installments
Money saved earns interest free of UK income tax and can be accessed whenever needed. However, money withdrawn cannot be added back once the annual deposit limit has been reached.
Parents who are already saving in a cash ISA or those who begin saving when their children are very young should consider an investment ISA. This savings tool is held for five to ten years and typically generates higher returns than a cash ISA.
The drawback is that an investment ISA has stock market exposure so the value of the investment and income it produces may fluctuate. ISA eligibility and the amount of tax relief provided depend on personal financial circumstances and ISA rules are subject to change.
When long-term savings is the goal, bonds are also smart choices. A fixed rate bond provides a fixed rate of interest guaranteed for the bond term. A flexible bond provides a guaranteed interest rate and the ability to access some of the savings.
Parents who are not afraid of taking on more risk may want to consider investments because these usually perform better than savings over the long-term. Before investing, they should determine how soon they will need access to the money. Most investments are designed with a five to ten-year timeframe.
If investments seem too risky and they have reached their ISA limit for the year, parents can go back to the basics by opening a regular savings account. They can establish a standing order for monthly contributions so they will not be tempted to spend the money.
If they leave savings in the account for a predetermined period, it will earn a higher rate of interest. The money is available for instant access and a standing order can be adjusted at any time.
Saving With A University Fund
A university fund is designed for higher education savings because the money is locked away until the child reaches age 18. A Child Trust Fund is an option for UK children born between 1 September 2002 and 2 January 2011.
If child benefit was received for one day or more before 4 January 2011, parents are eligible for a £250 to £500 Child Trust Fund voucher that can be used to establish this fund. Parents who did not receive this voucher should check to determine whether a replacement is available.
With this tax-free fund, parents, friends, and relatives can deposit up to £1,200 per year. This money will remain in the account until the child is 18 years old. A basic savings account established in the child’s name is an alternative that can be opened with only £1 and maintained by parents until the child reaches age 18.
This account is tax-free up to £100 interest per parent and if a parent is the only contributor, the money is taxed at the parent’s rate.
