How to save for your child’s college education

Sending your child to school isn’t a cheap business.

The cost of educating a child from primary school to college is estimated to be well over €60,000, with third level by far the biggest expense.

With just one week to go until over 56,000 students receive their Leaving Cert results, HerMoney financial advisors are providing parents with advice on smart ways to save for their child’s college education.

Regular saver account (short term saver)

The first consideration when looking at how and where to save your money is how long do you have? If your child is going to college in the next five years, then realistically you only have the option of a bank or credit union deposit account.

The best advice here is to save as much as you can afford and shop around the various institutions to try and achieve the highest interest rate possible. Comparison websites such as bonkers.ie are useful in helping you compare the various deposit interest rates.

Any interest on savings lodged in Irish banks is taxed - DIRT (deposit interest retention tax) at 35 per cent (it will change to 33 per cent in January). For PAYE earners under the age of 66 with unearned income exceeding €3,174, PRSI (pay-related social insurance) will trim off a further tidy four per cent.

State savings scheme (medium term saver)

The State savings scheme is an attractive option for parents who want to save a lump sum of money for the medium to long term. The huge benefit with this type of account is your savings are not subject to any DIRT. The interest rate is fixed, and is currently 1.5 per cent annual equivalent rate fixed on a ten-year bond. Once again, these accounts come with many terms and conditions, so read carefully before deciding what is best for you.

Long term savings and investment plans

If time is in your favour and there are more than five years before your child goes to college, there are alternative investment options to bank deposit accounts.

There are a number of investment vehicles available at all levels of investment risk, which enable you to invest in a range of funds from low to medium to high risk, and will accept lump sums of money as well as regular monthly savings from as little as €75 per month.

Investing in multi-asset funds means the value of your investment has the opportunity to generate higher return over the longer term in order to both grow your money and also to try and ensure you beat inflation.

Growth on these policies is subject to exit tax of 41 per cent either on encashment or partial encashment of the investment, or the eighth policy anniversary if sooner. The growth is not subject to PRSI.

“The most important word when it comes to saving for your child’s education is ‘start’. The earlier you start, the easier it is to manage your finances,” said Karen Goodliffe, Director of HerMoney financial advisors.

“For example, if your child is starting college in four years’ time, in 2023, you would now need to start saving €1,000 per month.”