How to save for pricey college bills
As it could cost almost €800 a month to save for a child's college bills, and €600 a month for private school, such savings have now become the second mortgage for many parents, writes Louise McBride
Saving up for your child's education could be your second mortgage - because of the mammoth college and private school bills that await you.
If your child is living away from home, it could easily cost €44,000 to send them to college for four years, according to the Dublin Institute of Technology.
Should you also have a fee-paying school in mind for your child, you could face fees of as much as €22,000 a year for full board. Day board could set you back up to €15,000 a year.
Private school fees for day pupils vary widely but the least you can expect is a few grand a year. The fee-paying school sector was hit during the recession but the number of pupils in these schools is on the increase again.
Bills like this mean that the earlier you start saving for your child's education, the better. So when exactly should you start saving - and how much do you need to put by?
Don't wait any later than your child's toddler years to start saving for college bills. Otherwise, you'll find it hard to handle the savings.
Class of 2030
Let's say you're planning to send your child to college in September 2030. You want to save up the full cost of a four-year college bill by then. You'd need to save between €171 and €230 a month between now and September 2030 to hit your €44,000 target - depending on the investment return you earn, according to Ross Curran, MD of the Galway financial advisers, Curran Financial Services.
Save into a product with a low investment return of around 1.2pc a year (such as some of the regular savings accounts) and you would need to save €230 a month. Choose a product which makes a 5pc return a year and you'd only have to save the €171 a month, said Mr Curran.
Having almost 15 years to save gives you the option of investing in stocks and shares - because that should be enough time to recover from any losses that hit the stock market and to make money from market upturns. Equities (that is, stocks and shares) generally deliver better long-term returns than any other types of investment - as long as you choose them well.
"One niche equity strategy that seems to offer a better rate of return with no significant added risk is what's known as Small CAP Value Stock," said Mr Curran. "With this stock, you invest in relatively smaller companies than the usual Apple, Nestle or Coke - and by doing so, you can generate significantly greater returns over time. Companies such as Vanguard, Dimensional and iShares offer these types of funds."
Investing in Irish commercial property through a real estate investment trust - a property investment company listed on the stock exchange - is also an option for those who have almost 15 years to save for college bills.
Standard Life Investments expects returns on Irish commercial property to be about 8pc a year over the next three years, largely because of strong economic growth here.
Like any investment choice, review the returns on Irish commercial property every year in case you need to move your money elsewhere.
Class of 2025
Should you expect your child to begin college in September 2025, you would need to save €361 a month to save €44,000 by then, assuming your savings make an investment return of 1.2pc a year, according to Mr Curran. Make a return of 5pc a year and you'd need to save €298 a month.
You can still afford to get exposure to the stock market if you have almost 10 years to save. For this reason, life assurance regular savings plans, such as Aviva's regular saver or Zurich Life's LifeSafe Savings Plus plan, could be worth considering.
Keep an eye on your investment performance, however - you can lose money on these plans.
Should you be unwilling to take any risk, consider a regular saving account offered by a bank or An Post instead.
Class of 2020
Parents who have left it until now to save for a child who is due to start college in September 2020 will need deep pockets. You would need to save €778 a month to get a lump sum of €44,000 together by September 2020, assuming your savings make a return of 1.2pc a year, or €710 a month should your return be 5pc a year, according to Mr Curran.
Leaving it this late to save also means you cannot afford to take any investment risk.
The best way to save this money would therefore be through a regular savings account which pays better-than-average interest.
The best interest rate you'll get on regular savings today is 3pc and only three accounts pay this - EBS's Family Savings account, Nationwide UK's Regular Saver, and KBC's Regular Saver (though you will need a current account with KBC to get the top 3pc rate).
As regular savings accounts usually have a limit on the amount of savings they pay a good interest rate on, you might need to pay into two or more accounts, as you have a savings target of €44,000.
Remember too that you will lose almost half of any interest you earn on your savings to tax - unless you choose an account, such as some of those offered by An Post, which earns interest tax-free.
Saving for private school
Should you plan to send your child to private school for secondary education, start saving from their baby years.
Let's say you are expecting a bill of €90,000 to send your child to private school for five years. You want to save that money over the next 10 years.
To hit that target, you would need to save €575 a month for the first year and increase the amount you save by 3pc for each year that follows, according to Richard Morton, director of the financial advisers, Moneywise.
So save €592 a month in the second year; €610 a month in the third year and so on.
You would also need to have your savings in a product which delivers an annual return of 4pc to hit your target.
Mr Morton recommends two life-assurance savings plans for parents saving up for private school - Irish Life's Pinnacle and Zurich's LifeSave Special Saving Plus.
Be sure you understand how charges can eat into the value of your investment if choosing one of these plans.
Both of these plans invest in the stock market. Should you be a cautious investor, consider investing in a regular savings plan offered by the bank or An Post instead - though as the returns are likely to be lower, you will need to save more.
"Parents with more than one child could consider paying for private education for the first child from salary or income at the time and setting up a savings plan for subsequent children because saving €575 a month may not be an achievable target," said Mr Morton.
"Alternatively, assuming that third-level education will be the ultimate goal for their children, a savings plan for the first child could be set aside as a college fund - if private school fees come from existing income."