BLOG: School fees – how to save early
Data from the Independent Schools Council shows an increasing number of families are choosing to put their children through private education, with the current numbers at the highest level since records began. However, with school fees increasing by 24 per cent over the past five years to total more than £200,000 from ages five to 18, if you do decide to take this option, you will need to plan your finances carefully if it is to remain an affordable option.
Making fees affordable
Faced with these rising costs, you may face a stark choice – start saving early or miss out. We have calculated if you save £907 a month into a deposit account paying interest at 2.5 per cent annually from when your child is born, it will cover the costs of day school private education from age five to 18. If you want to send your child to boarding school, then it is estimated you will need to save £2,246 per month.
While this will still remain a big financial commitment, the interest earned over the years could amount to the equivalent of one year’s average fees, providing another reason to start saving as early as possible.
It may also be worthwhile to explore whether schools have any bursaries, grants or scholarships available to help with the cost. These details should be available from the schools themselves or the local education authority.
If you are saving for school fees, you will want to make sure you have access to the funds when you need them.
One of the easiest ways to achieve this is with an Individual Savings Account (ISA), which allows money to grow free of capital gains and income tax, while still providing easy access. Because of their tax efficient nature, there are limits to how much you can save into an ISA each year. For the tax year 2015/16 this is £15,240. You are able to save the full amount in cash, stocks and shares, or any combination of the two. Next year, added flexibilities will be introduced by some providers, allowing savers to take money out of their ISA and put it back in later, without losing any of their tax free allowance, provided money is put back in within the same tax year. This is good news for people who need to make sizeable withdrawals several times a year to pay for school fees, while still continuing to save.
You should review any existing savings, investments or assets you already have. These may provide returns that could contribute towards the school fees.
Grandparents may also want to help and they too can make tax-efficient contributions towards education costs while potentially reducing any inheritance tax liability on their own estates. However, reducing inheritance tax liabilities can be a complex area, so it is important they and you take expert advice.
If children are forced to leave their private schools suddenly, it could be a big upheaval for them so it is important you consider what would happen if you are unable to pay the fees if your personal circumstances change, for example, if you are unable to work because of illness or injury. Income protection policies can pay a regular tax-free income, typically up to 55 per cent of your pre-incapacity level until you are able to return to work.
Putting children through private education is undoubtedly a big financial commitment. Whatever you decide to do, it is best to take professional advice from a financial consultant to ensure your financial commitments match your personal circumstances.
Alan Whiting is head of marketing for Wesleyan.