Tuesday 12 December 2017

Do you want the good news or the bad news?

Charlie Weston

THE good news is that the cost of educating a child from primary school to third level has come down.

The bad news is that the overall sum is still considerable.

Brace yourself for the figure -- €60,000. That is the mammoth amount of money researchers at parent resource Schooldays.ie and Bank of Ireland estimate it takes to educate a child.

Last year, the same researchers put the cost at €70,000, so at least the expense of education has lessened a little.

Totting it all up like that makes the costs seem huge and must make families whose children have yet to enter on to the school system wonder how they will ever afford it.

Of course, these costs are incremental -- you do not have to shell out all that money in advance. 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 was about €10,200.

For secondary school, an outlay of €12,000 is required, with third level costs at €40,400, a figure that includes the recently-hiked registration fee/student contribution fee.

Save now, if you can

The elevated cost of education means that, if you can at all, it makes sense to save. This is especially the case if your child is about to or has just entered the education system.

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 again in the last Budget to €140 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 18 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 good news for savers is that all four domestic banks -- AIB, Bank of Ireland, Permanent TSB and EBS -- offer interest rates of more than 4pc if you leave your money on deposit for a year or more.

This is at a time when the European Central Bank rate is 1.5pc.

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 27pc has to be taken out of this.

It is estimated that up to a quarter of families save child benefit every month.

Regular savings accounts

Particularly good value are regular savings accounts, with almost all the domestic banks offering families such an option. Top of the heap is EBS, now merged with AIB, with a rate of 5pc for the first year only. The most you can save in the year is €12,000.

In year two, the rate drops to 3.6pc, but the amount you can save doubles to €24,000. Regular lodgments are required by direct debit only, and the minimum term is one year. The minimum amount you can put in is €100 a month, while the maximum is €1,000.

You can make the best return from this account by withdrawing all money on the first anniversary "at the end of the term", according to the website www.askaboutmoney.com.

Permanent TSB's online regular saver pays 4pc on €1 to €50,000. This is only available online.

Monthly lodgments of up to €1,000 are allowed.

Ulster Bank's special interest deposit account has a 4pc rate on up to €15,000. The rate falls to 1.5pc from €15,000 to €100,000.

Regular lodgments are required (standing order only). There is a monthly minimum of €1 and monthly maximum of €1,000.

The AIB regular saver account pays 4pc for a year up to €6,000 and drops to just 0.01pc for year two, according to askaboutmoney.com.

Bank of Ireland offers 3.25pc on balances up to €5,000 and 1pc on the remainder.

State schemes

With some of the best interest rates at no or very low tax, it should come as little surprise that the savings schemes offered by the State are popular.

About one out of every €10 in household savings in this country has been stuffed into An Post products.

Savings Bonds offer 3.23pc a year over three years with the added advantage of there being no tax imposed on this. You would need to get 4.42pc from a bank to match this rate. Early withdrawal is possible but it is subject to interest penalties.

If you are prepared to lock your money away for four years then you can get an annualised return of 3.31pc from the four-year version of the National Solidarity Bond.

A slightly complicated product, the National Solidarity Bond is structured with 1pc in interest paid every year -- with this subject to deposit interest retention tax (DIRT).

If you remain invested for the four years you get an 11pc tax-free bonus at the end of the term.

Worth considering too are Savings Certificates. These are for a five-year and six-month term, with an annualised return that works out at 3.53pc.

Early withdrawal is possible but is subject to interest penalties. Interest is accrued each six months from date of purchase. You can withdraw at any time during the term but you will lose any interest that has yet to be accrued.

The 10-year version of the National Solidarity Bond has an annualised return that works out at 3.95pc.

Savers receive the interest in the form of 10 annual payments of 1pc and a tax-free bonus of 40pc at the end of the 10-year term.

You start to get tax-free bonuses from the end of year five on. If a saver cashes in their term deposit before the end of the fifth year they will not qualify for the bonus.

Irish Independent Supplement

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