Paying for school fees

Locornwall

I would like to send at least one of my children to private school. Say for example for my son is now 2, therefore I have some years to save before he goes to secondary school.

I was considering the best way to save for this.

My first option would be to save in a savings account, however the interest are very poor. My second would be to put it into an ISA, however a better option, still not such a good return. I was also thinking about paying off my mortgage earlier. I couldn't do this in the period I have to save, however would be able to reduce it significantly.

Any thoughts please on this would be greatly appreciated.

Thanks

xylophone

Private school fees, like care home fees, tend to increase well ahead of inflation. The costs do not end with fees - there are the extras (uniform/activities etc) to fund as well.

You can check on the cost of 5-7 years at the school(s) of your choice now and at least double it as an amount to aim at.

You may be able to obtain a loan for school fees - you may also benefit from using any "fees in advance" scheme the school may have.

Your child may benefit from a scholarship or bursary if he turns out to have particular talents.

You need to take advantage of any way of squeezing a half decent rate of interest out of cash savings and aim at funds which are likeliest to give you steady growth in your and your spouse's ISA portfolios.

Grandparents may help? They may be prepared to fund a "bare trust" in the name of the child - the funds in such a trust belong to the child absolutely but it would be possible for the Trustees to access the money solely for the benefit of the child - this would cover the fees and expenses of private education.

However, any money left in the Trust once the child turned 18 (16 in Scotland) would fall under the control of the child - he would have the right to demand access.

Remember to take out life insurance to cover the costs in the event of your/your spouse's deaths and make sure that your wills cover guardianship.

Specialist advice is available - example http://www.schoolfeesadvice.org/

jimjames

I assume you mean you considered a cash ISA not having good returns. If the time period you're looking at is 10 years or so then S&S ISA would probably be a better option

Locornwall

Yes, I was referring to a cash ISA

Malthusian

xylophone wrote: »

Grandparents may help? They may be prepared to fund a "bare trust" in the name of the child - the funds in such a trust belong to the child absolutely but it would be possible for the Trustees to access the money solely for the benefit of the child - this would cover the fees and expenses of private education.

While not a bad idea on the face of it I'm not sure it's necessary. You now have to have quite a substantial investment portfolio (which is what we're talking about given the child is two) before you have to pay tax on the income or gains. Just over £15,000 can be saved within an ISA each year, and for the rest you have a £11,000 annual capital gains allowance and up to £5,000 per annum of dividends is tax free. (We can assume the OP is not maximising their ISA allowances given their lack of knowledge about ISAs.) So with a growth-oriented portfolio yielding 2-3% you need £160k-£250k in equities plus what you have in your ISA to pay dividend tax.

So you need a very substantial investment portfolio for tax on income and gains to be a problem, and if it isn't a problem there's little reason to put it in the child's name. If you put it in the child's name you run the risk that, for myriad reasons that could occur between age 2 and 13, a fee-paying school might not be right for them and the money ends up as theirs absolutely at age 18.

Imagine if you save up a six-figure sum in a child's name for their education and the child goes completely off the rails in their teenage years. Not only are they kicked out of their posh school but by getting kicked out of school they guarantee themselves access to a six-figure sum at 18 to squander. Not saying this will happen to the OP's DS but just illustrating the risk of putting substantial sums in someone else's name, even if the law says you have limited power over it for a limited period.

The OP does not say how much the school they want charges in fees (which as mentioned would have to be increased by substantially more than RPI inflation over 10 years), how much spare income they have to spend on fees (or save towards them) now, and how they plan on making up any shortfall. If these are unknown we are getting way ahead of ourselves by talking about what should be done with current savings.

martinsurrey

jimjames wrote: »

I assume you mean you considered a cash ISA not having good returns. If the time period you're looking at is 10 years or so then S&S ISA would probably be a better option

Locornwall wrote: »

Yes, I was referring to a cash ISA

I would be putting it in a Stocks and Shares ISA, just a simple index tracker with profits reinvested (low fees).

steampowered

Another way to think about it is the amount you save on your mortgage vs the return you get on an ISA.

As mortgages are very cheap at the moment, assuming you are on the cheapest mortgage available to you and not sitting on a standard variable rate, it is likely that the returns from a Stocks & Shares ISA would exceed the rate you are paying on your mortgage.

Malthusian

steampowered wrote: »

As mortgages are very cheap at the moment, assuming you are on the cheapest mortgage available to you and not sitting on a standard variable rate, it is likely that the returns from a Stocks & Shares ISA would exceed the rate you are paying on your mortgage.

...but it can still be worthwhile to pay off the mortgage to get on to a lower LTV ratio and to ensure you would not struggle to find a new deal if interest rates went up.