The jumping cost of education
Published 06/08/2010 | 13:59
Funding the education has become a crippling cost for most households. It is so expensive that it is probably the second biggest outlay for the majority of families after a mortgage.
Research by the Bank of Ireland in conjunction with parent resource schooldays.ie shows the cost of educating a child from primary school through to college at around €70,000.
Putting it that way makes the costs seem horrendous and must make families whose children have yet to enter on to the schools system wonder how they will afford it.
Of course these costs are incremental -- you do not have to shell out all that money in advance. Instead it is paid out in dribs and drabs, however, is nonetheless a huge drain on the family budget.
The research found that the cost of putting a child through primary school is about €13,000. For secondary school an outlay of €14,100 is required, with third level costs at €42,000, a figure that excludes the muted re-introduction of college fees.
One way to cope with these costs, especially if your child is about to or has just entered the education system, is to start putting money aside every month. Many families have no spare cash, but for those that can spare it the monthly child benefit payment from the State provides a good way of putting an education fund together.
Controversially cut in the last Budget to €150 a month per child, the benefit pay is still a significant sum.
Child benefit is paid to the parents or guardians of children up to the age of 16. It is paid up to the age of 19 for children that are in full-time education.
Putting this money into a deposit account every month for 18 years would generate a tidy sum of almost €50,000, assuming an interest rate of 4.5pc, calculations by the Consumers' Association indicate.
The power of compound interest becomes your best friend in this situation. That's the good news. The bad news is that deposit interest retention tax (DIRT) of 25pc has to be taken out of this.
Approximately a quarter of families save child benefit every month.
The problem for parents at the moment is that deposit rates being paid by banks, building societies and credit unions are being cut all the time.
EBS Building Society's Family Savings Account pays 4pc in the first year for amounts of between €100 and €1,000. However, the interest rate falls to 3pc in the second year.
Also targeting family savers is AIB which has a Parent Saver Plan. This is a monthly saver account with an interest rate of 5pc. This is a variable rate, so can change, and there is a monthly maximum amount of €200.
But don't get caught out thinking that this rate is for a few years, because the 5pc rate is only good for a year. In year two the funds built up get transferred into a Parent Deposit Account paying a measly 0.5pc.
Both Ulster Bank and Permanent TSB pay 4pc on their regular saver, or monthly accounts. The maximum you can put into these accounts is €1,000.
Also worth considering is Nationwide UK (Ireland), an internet and postal bank operation run out of Dublin, that pays 3.3pc on amounts over €2,000 for its demand deposit.
Don't forget to check out your local credit union, as it may have a good saver rate. However, it is sometimes hard to tell what the rate is as it depends on the dividend declared by the credit union at the end of the union's financial year.
State savings schemes, such as the An Post bonds and savings certificates and the National Solidarity Bond, are well worth considering because there is either no tax or only limited DIRT tax on these products.
An Post savings bonds pay 10pc if held for the full three years. This works out at an annual interest rate of 3.23pc, and there is no DIRT tax.
Savings certificates pay 21pc if held for the full five years and six months. This works out at 3.53pc a year, and again there is no tax.
Another option is the National Solidarity Bond. This pays a 1pc "coupon" or interest rate each year. This will be subject to DIRT of 25pc.
In addition to this coupon, there will be a series of tax-free bonus payments.
If the bond is held for five years, the bonus will be 10pc, with a bonus of 22pc for seven years. Those who hold the bond for the full 10 years will earn a tax-free bonus of 40pc.
The annual equivalent rate (AER) for those who hold the bond for five years would work out at 2.6pc a year after tax.
Over 10 years, the net or after-tax return will be just under 4pc a year.