Better ways to tackle those education bills
Published 07/08/2011 | 05:00
If you've just started your family, or have children that still have a few years to go before they start school, the earlier you start to save the better.
You could use your child benefit (currently €140 a month for one child) to save for your child's education. If you start to save that €140 a month from the day your newborn comes into the world, you'll have saved €6,720 (plus interest) by the time your newborn is four (the age most kids start school). As you will continue to get that child benefit until your child reaches the age of 16 or 17, child benefit should help cover most of your child's school costs over the years -- as long as you continue to save the full amount (and child benefit isn't cut). If you squirrel away a full year's child benefit payments, you'll save €1,680 plus interest a year. That will easily cover school costs for a primary school pupil for a year -- but there will be a shortfall of about €300 for a secondary school pupil.
As many of the Irish banks are paying interest rates of four per cent or more on regular savings accounts, these accounts may be a good home for your child benefit payments. Be careful, however, to check for how long the bank will pay an attractive interest rate on your savings -- and if you'll lose that rate if your savings go over a certain amount.
EBS has a Family Savings account that pays five per cent interest for the first year -- and 3.6 per cent interest for the second year. Permanent TSB's Online Regular Saver account pays four per cent interest on balances of up to €50,000 -- but an interest rate of one per cent kicks in on any balance over that amount. Ulster Bank's Special Interest Deposit account pays four per cent interest on balances up to €15,000 -- and only 1.5 per cent interest on any balance over that amount. AIB's Regular Saver account pays four per cent interest for a year on balances of up to €6,000 -- but a lower rate kicks in after the first year.
You must usually pay 27 per cent tax on the interest earned on savings accounts held with a bank.
You can avoid this tax by opening certain savings accounts with An Post.
An Post's Childcare Plus savings account pays 3.37 per cent interest a year tax-free as long as you save your monthly child benefit into the account for one year -- and leave that money on deposit for five years. Your monthly child benefit is paid directly into this account.
CREDIT UNION LOANS
If you must get a loan to put your child through school, check out your local credit union as it may offer a cheaper personal loan than your bank. St Raphael's Garda Credit Union, for example, offers a one-year loan of up to €10,000 at an interest rate of 5.05 per cent. So if you borrow €2,000 (enough to put a secondary school pupil through school for a year) at an interest rate of 5.05 per cent and repay that loan monthly over the year, the interest bill on the loan will add up to €54 -- which is about a third of the interest charged by some banks on the same loan.
Even if you can't borrow from your credit union at an interest rate of five per cent, you may be able to chase down a loan with an interest rate of six or seven per cent. Dundalk Credit Union, for example, offers loans for back-to-school expenses at a rate of 6.99 per cent.
If your finances have really taken a turn for the worse over the last year, see if you are entitled to any support from the state for your children's back-to-school costs. The Department of Social Protection has a back-to-school clothing and footwear allowance which pays €200 toward the cost of uniforms and footwear of a primary school pupil -- and €305 for a secondary school pupil. You must be on social welfare and your income must also be below a certain limit to qualify. A couple with one child, for example, cannot earn more than €563.60 a week.
There may also be a school book-rental scheme in your school which would reduce the cost of your children's school books. Not all schools, however, operate these schemes.
Sunday Indo Business