Many parents have long wished for their children to go to university.
But since the introduction of tuition fees, many are having to seriously consider whether they can afford to or not.
With tuition fees alone being up to £9,000 a year, a four-year course will cost an eye watering £36,000 just in fees alone. And then you need to add on living expenses.
So the total expense could easily come to more than £50,000!
The key to saving for university fees is to start as early as possible. A relatively modest monthly saving of £100 for 18 years, could go a long way to providing a sizeable lump sum to at least pay for some of the costs.
Assuming a net return of 5% a year saving £100 a month for 18 years could produce a lump sum of almost £35,000.
Historically, regular savings into Stocks & Share type investments have the potential to increase in value more so that saving into a cash or deposit account. With 18 years to save, it is possible to take advantage of investing in equities, to potentially much better returns.
By contrast, if you delay the commencement of saving until your child is 10 years old, to achieve the same fund size, the amount needed to be saved each month would be approximately £225 a month.
There is no doubt that any investment that is linked to Stock & Shares can be volatile, however long-term history has shown that the returns are considerable better than cash. In fact current deposit returns are losing value in real terms as inflation is currently higher than deposit rates.
Although investment returns have historically been greater than 5% a year, a more cautious investment return of 5% is prudent given the current economic situation, even though the total return on the FTSE All-Share index for the last two decades has been considerably more.
In the earlier years of saving more risk can be taken with the investment, however it is advisable to reduce the risk as the time for your son or daughter to go to University gets closer. And at some point moving all of the money into a deposit account may be the right strategy.
Grandparents often wish to help their grandchildren and in many cases, are willing to put money aside for a university fees. Grandparents can use their annual gift allowance each year that allows them to give away £3,000 tax-free.
The government has also introduced tax-efficient individual savings accounts (ISA’s), known as “Junior ISA’s” for younger savers. The maximum that can be saved is £3,600 and they will not be able to access the funds until they are 18 years old.
And finally if all fails and your child does not go to university, the money that has been saved could be used as a deposit on their first home!
Information provided by Martin Dodd
Independent Financial Adviser
Helping Build, Maintain and Safeguard your financial wealth
Contact: 01902 742221 or visit us at www.miadvice.co.uk