Do your Research
Saving on behalf of children will often be the largest single item of expenditure for parents.
Consider the costs shown in this table. These have to be met from your after-tax income and,
even worse, historically all of these items have increased at much more than the rate of inflation.
| Purpose
| Typical Cost
| Potential Investments
|
| Primary Education |
Up to £40,000 per child |
Selected Zeros, Bank Accounts, National Savings, Guaranteed Bonds |
| Secondary Education |
Up to £120,000 per child |
Temporary Annuities, Investment Trusts, Unit Trusts, Selected Zeros, Corporate Bonds |
| University Education |
Up to £20,000 per child |
| Deposit for Property Purchase |
Up to £20,000 per child |
Guaranteed Bonds, Deposit Accounts |
| Pension |
Up to £50,000 per child |
Stakeholder Pensions |
If you want to make provision for these costs the first rule is to start as soon as possible,
so as to benefit from the power of compound interest. Secondly, employ an investment policy
that reflects your objectives:
How far off is the liability? If less than five years then you should be looking at investments
that provide a predictable return, e.g. guaranteed bonds, lower risk zeros.
How fixed are the plans? If they are likely to change you will need a policy that allows flexibility.
How can you maximise the tax efficiency? Parents liable to top rate tax and potentially liable
to IHT have a powerful incentive to make use of the child's tax free allowances.
Depending on the amount available and the source of the funds, you might wish to consider
putting the investment in trust.
Lump sum or regular savings? This will affect the range of potential investments available