Start saving now for your child's university fees
Oct 23 2010 by Alok Dhanda, The Journal
FOLLOWING the recent news about the proposed rise in the cost of university tuition fees, many parents are now left wondering how they will fund their children's venture into higher education.
Tuition fees could double from autumn 2012, and may even hit £12,000 a year, so it has never been more important for parents to start planning ahead as early as possible.
A three-year degree course outside London already costs £43,329, according to the National Union of Students. This includes tuition fees of just over £3,000 a year, plus living costs. If some universities were to charge fees of up to £10,000, this would push overall costs up to almost £65,000 for one child.
The key then is for parents, grandparents and anyone with an interest in a child’s future to start saving as much as possible as soon as they can. By putting away £180 per month from birth they would achieve a fund of £60,000, but would need to save more if starting a fund later on in their life.
Traditional bank and building society accounts are not giving the best return on deposits at the moment due to low interest rates, so it is important to ask the advice of an independent financial adviser, who will help you choose the best savings options for your circumstances.
For instance, although Child Trust Funds are disappearing next year, more than five million children already have one. If your child already has one, you can save up to £1,200 tax free a year, which should produce a fund of about £36,000.
Parents could also look at maximising their Isa contributions as a way of raising funds towards their child’s education. Anyone aged over 18 is able to pay up to £10,200 into an Isa, £5,100 into a Cash Isa and £5,100 into an Equity Isa. Any growth in investment resulting from an Isa is totally free from income and capital gains tax, so this can be an ideal way to make the most of your savings.
Parents can also consider Friendly Society Tax Exempt Savings Plans, where they can save a maximum of £25 per month or £270 per year, and plans must run for a minimum of 10 years. This can be used in addition to any savings parents already have in their Isas.
Another savings option to bear in mind is With-Profits Funds, which are a type of investment with a life assurance provider. The money you put in is pooled with other investors’ money and invested in a mixture of shares, bonds, property and cash. If the investment performs well, you should get an annual bonus each year, as well as a terminal bonus when your policy comes to an end.
What makes with-profits investments unique is the smoothing process, whereby some of the return from the investments in the fund is kept back in the years when the fund does well, and used to pay you more than the underlying return on the funds in years when it does badly.
It is also worth asking your independent financial adviser about MIPs (Maximum Investment Plans), which are regular premium 10-year policies which pay out either a tax-free lump sum, or a tax- free income can be taken by extending the plan for a further 10 years. MIPs provide the ability to invest in a large range of funds specialising in different asset classes, and the chance to switch between them and redirect the investment of contributions at little or no cost.
Grandparents may also want to gift money towards the future education of their grandchildren, by utilising their annual gift allowance of £3,000 each.
At the moment our universities are seeing an influx of overseas students who can afford the costs of study. However, it’s important that children in the UK who have a desire to learn have the opportunity to further their education. There is a lot of home-grown talent in this country and it is important that this is nurtured, no matter how challenging the country’s economic situation is.
:: For information on how Alok can advise you on university funding, contact Dhanda Financial on 0191 255 8960, email email@example.com or visit www.dhandafinancial.com