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Opening a savings account while your child is young to help pay towards their potential university education could help them to escape years of debt in the future.
The cost of tuition fees for an English university can cost up to a maximum of £9,250 per year for an undergraduate degree, following the 2017-18 £9,000 cap rising in line with inflation. In addition to this, the average student rent during 2019 outside of London is £79 per week and £187 per week for those in London, according to the latest report from Accommodation for Students. That’s before students factor in food, travel and lifestyle costs, which could mount up to extra hundreds per month.
One way parents can financially help their children through their university education is by opening a savings account while their child is young. Although there are currently no savings accounts specifically for parents wanting to save towards their child’s future university education, there are a wide range of savings accounts that can be used for this purpose.
For parents who have a large lump sum to invest for their child’s future, opening a long-term fixed rate bond is a good option as these accounts usually offer the best rates. The top rate currently offered in the fixed rate bonds chart is an expected profit rate of 2.85% on a seven-year bond by Bank of London and The Middle East (BLME). A good option for an account that allows transfers in is a fixed rate ISA, making sure to check if transfers-in are allowed and sticking to a maximum deposit of £20,000 in the current tax year. The current top rate in the fixed rate ISA chart is 2.30% on a seven-year ISA being offered by United Trust Bank. It should be noted that fixed rate accounts usually do not allow further additions once the account is open, which means that they are not the best option for parents wanting to add funds regularly to the account.
A regular savings account normally requires a minimum amount to be deposited into the account each month, while the minimum amount required is dependent on the terms of the individual account. For example, first direct is currently offering the top rate in the regular savings accounts chart at 5.00% and requires a minimum payment of £25 per month into the account to a maximum of £300 per month. To open this account, applicants need to have first direct 1st Account and the total amount that can be saved into the account is £3,600 during the 12-month term. How the interest is added to regular savings accounts can be complicated – this guide explains how it works.
Once a regular savings account matures then parents could consider moving the funds into a short-term fixed rate bond, which may offer a higher interest rate than easy access savings accounts and regular savings accounts, but will still allow access to the funds after a short period of time. The top rate being offered in the one-year fixed rate bond chart is an expected profit rate of 2.35% on an 18-month bond by BLME. Parents could choose to put money into a short-term fixed rate bond to benefit from the higher rates, while also continuing to save for their child’s future with a regular savings account.
Alternatively, parents could open a children’s savings account on behalf of their child. The rates on children’s savings account are very competitive, with the top rate on offer at 3.60% on a Junior ISA (JISA) from Coventry Building Society. This account allows further additions, but the money cannot be accessed until the child reaches 18 years of age. Another benefit of choosing a JISA is that £4,368 can be deposited into the account each tax year. It should be noted, however, that with a JISA no funds above this £4,368 limit can be added into the savings account. Saying this, the JISA limit is separate to that of an adult ISA account, which means parents can add a total of £20,000 per year into their ISA, as well as £4,368 into a JISA on behalf of their child.
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