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Investing for your child’s education

06 August 2019

4 minute read

Thousands of students will head off to university this autumn. But higher education doesn’t come cheap. We consider ways to plan ahead for this cost.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice.

What you’ll learn:

  • How the cost of a university education stacks up.
  • How to start preparing now.
  • What financial help is available from student loans.

Students heading to university in the UK this year could face a bill of £9,250 a year for tuition costs alone, depending on where they’re from and where they’re studying.

Now factor in a three-year stint at university, four if you’re in Scotland or studying foreign languages, and five for a medical or veterinary degree, and you don't need to be a mathematics graduate to work out that higher education is an expensive business.

If you’re from Scotland and studying in your home country, you’ll get free university tuition but students from England, Wales and Northern Ireland pay to study north of the border.

With rent to pay, living costs, books, field trips, travel home during holidays and many other expenses to consider, if you’re planning on providing financial help to your children, you can’t start planning soon enough.

What’s your timeframe?

How you save for your child’s higher education costs will depend on how long you’ve got before the money will be needed.

For example, if your child is due to start university in the next few years, sticking with cash savings is likely to be your best bet so the money is readily available and there’s no investment risk.

If you’ve got longer, at least five years but preferably nearer 10 or more, and you’re comfortable accepting the risk that you could lose money in return for potentially higher returns than cash savings can offer, then you might want to consider investing.

Short-term fluctuations and market swings should hopefully have time to iron themselves out during that sort of timeframe, but you’ll need to bear in mind that however long you hold investments, there’s a chance you might still get back less than you invest.

It’s also important to remember that you should try to invest across lots of different of assets and sectors, so that if one of these disappoints, hopefully some of your other investments will make up for it.

Funds can offer a simple way to do this, pooling your money together with that of other investors and investing in a wide spread of investments to help reduce your overall risk.

Choosing funds

There’s a huge range of funds to choose from, which can seem daunting, especially if you’re new to investing.

If you want a simple solution to creating a diversified investment, you may want to consider Ready-made investments. This takes the away the work of making investment decisions, as your money is placed across a range of assets on your behalf.

Barclays offers a selection of five Ready-made Investments. You can try to choose the one that’s right for you, depending on your attitude to risk, although these funds won’t be right for every investor. The fund manager makes the investment decisions on your behalf, aiming to invest in a diverse range of places, companies and investment types, such as shares, bonds and cash for potential long-term growth.

There are thousands of other funds to choose from. The Barclays Funds List can help you narrow down the wide range of funds available to invest in, arranged by different sectors. Seek professional financial advice if you’re not sure where to invest.

Who’s in charge?

There are various methods to take control of the money you invest for your child and keep it out of their hands until you feel they are able to spend this wisely.

For example, trusts are often used to ringfence assets so that children will receive money at a later date. These may hold various assets, such as shares or funds, and parents (or other ‘trustees’) may be appointed to manage the trust and decide how and when the money is distributed.

If you decide to use either a Junior Individual Savings Account (ISA) account or Child Trust Fund account to save for your child’s higher education costs, this means they’ll gain control of the money at 18 and can choose to spend it on whatever they want.

This tax year (2019/20) parents can invest up to £4,368 on behalf of each child into a cash or a stocks and shares Junior ISA or Child Trust Fund and gains and income are tax-free. A parent or legal guardian must open the account, but after that, anyone can pay money into it.

Your child can have one or both types of Junior ISA or one or both types of Child Trust Fund. However, they cannot have a Junior ISA as well as Child Trust Fund. You can transfer a Child Trust Fund into a Junior ISA if you want to.

You could also hold an ISA or investment account in your own name, with the aim that the money is invested for your child’s future. You can invest up to £20,000 in ISAs in the current 2019-20 tax year, and no limits on the amount you can invest in our Investment Account.

Bear in mind that tax rules can and do change and the value of any favourable tax treatment to you will depend on your individual circumstances.

Using student loans

If you know you’re not going to be able to save enough to cover your children’s university costs in full, look into student loans, which cover both tuition fees and living costs.

Student loans don't have to start being repaid until the April after graduation and only then when your child is earning more than £25,725 a year. This relates to courses in England and Wales started after 1 September, 2012. However, make sure you understand the rate of interest charged, as this has risen over recent years. Find out more on the government’s website. Remember that rules for student loans may change in the future.

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