Funding Granddaughter School Fees

Hal17 · 17 May at 3:21PM

It was over a year ago that I posted a question regarding the best way to fund future school fees for my 6 year old granddaughter. I received some excellent replies at that time.

If it all goes to plan she would start funded education in September 2031. I did not go down the investment track as it was felt the timescales required to reach the target were too short.

Therefore, I have been using 5 year Fixed Cash ISA's so far and have covered about 2.5 years of future funding.

I am looking at the current ISA rates and the 1 year and 5 year interest rates are quite close. I am not sure if I should give myself some flexibility to see what happens?

I have also thought about a S&S ISA where the funds would be required to cover her last two years (2037 and 2038), so over 10 years away. Again undecided what to do, it might be worth giving it a go.

My spreadsheet shows that if I keep on the Cash ISA route, I look to have it covered. Of course this is a finger in the air as interest rates and inflation going forward are the unknowns.

Would appreciate any thoughts.

InvesterJones · 17 May at 3:59PM

I'm not quite sure I understand your current plan - what do you mean by keep on the Cash ISA route? Have you already put enough in cash ISAs to cover the funding for the next 12 years of fees? Or are you anticipating buying more in the future? If the latter, what are you doing with the capital until you do so? If you project that you only need cash returns to meet your goals there's no need to take any more risk - you could lock in current rates by using a gilt ladder, or if the fees are likely to increase by inflation, an inflation linked gilt ladder, which has a tiny bit higher risk than cash (but if the govt defaults I think we'll all have more serious things to worry about).

silvercar · 17 May at 4:07PM

My thoughts would be that increases in school fees have in recent years outpaced inflation and savings rates, not helped by the government introducing VAT on school fees. I would have thought it sensible to have at least some of this money in S&S for long term growth.

You could also look at gilts, that seem to be having a good press at the moment. Government funded they are very low risk and you can buy one that mature at different times corresponding to the school years when fees are due. Key term to search would be ‘gilt ladder’

Hal17 · 17 May at 4:54PM

Thank you for both for your prompt replies, I do appreciate that. I certainly would need to educate myself with how gilts work. I have seen lots of posts on MSE so can look at those.

At the moment I am planning on adding £20K each tax year going forward to a new cash ISA. My wife and I have also been gifting from surplus income over the last 5 years, which have partly been used for an older grandchild educational costs. We have now fully funded her "0" & "A" level years going forward, so time to concentrate on our younger granddaughter.

I might gift £20K to my daughter this tax year to open a S&S ISA with Vanguard to hedge our bets on future growth. Having reached our early 70's, I still cannot believe our good fortune, having always been basic rate taxpayers, it's great that we are able to help out.