Article published 2nd June 2008
With the financial markets in turmoil, city bonuses slashed, unemployment topping 2 million and, in some areas, more than a third of pupils failing to get a place at their first choice school, the need to plan for school fees has never been greater.
We look at the all-important questions you need to ask and possible savings routes.
Questions to ask before you start saving
- How much can you afford to save now?
- Do you want to save occasional lump sums or make regular payments?
- Will other relatives such as grandparents be making regular or occasional contributions? There may be tax considerations.
- What is your attitude to risk? Is it crucial that your money is 100% safe, or could you feel comfortable with an element of risk as the pay-off for potentially better returns?
- Do you have a specific time-frame in mind?
- Do you have a specific target sum in mind? Are you prepared to structure your savings in order to reach it?
- Will the money be needed on specific dates - for example to pay termly school fees - or do you simply want to build up a general fund to help supplement the costs of your child's education as the need arises?
If you can answer some of those questions, it will be easier to pinpoint which savings routes will work for you, and which won't.
What's in a name?
Also, remember you can save in either your own name or your child's name (though some organisations may require the child to be of a certain minimum age). If you choose to save in your child's name, the control of the account will eventually be handed over to them on a specified birthday - usually their 16th or 18th.
Paying school fees up front
Some schools will allow you to pay fees in advance, which means you are paying today's prices (a significant issue considering the rate at which fees have risen recently). However, you may get back less than you paid if your child fails the entrance exam. Some schools will transfer pre-paid fees to another school, so you don't have to commit yourself irrevocably right at the outset. ISCis publishes a free leaflet called How You Can Afford an Independent Education, which contains more information on so-called 'composition fees'.
Funding school fees from income
If you're going to have to meet school fees out of income, it makes more sense to do so during the initial years, and leave any investments to grow. There are two reasons:
- The effect of 'compounding', where you're earning interest on the interest reinvested, means your money grows increasingly effectively over the long term.
- The earlier years of school tend to be cheaper anyway
Many schools now allow parents to pay monthly rather than termly, which makes cash-flow much easier. Even if a school doesn't make a point of offering this, it's worth asking; you may be charged a small admin fee but at least you don't have to budget for huge bills each term.