Whether you’re saving for university for your child or for yourself, the earlier you start, the better.
Saving for somebody under 18 years old comes with added benefits, such as higher interest rates and special tax-free considerations. If you’re an adult saving for your own studies, your choices are a little more limited.
However, that doesn’t mean you can’t find good ways to save.
1. Regular savings accounts
Using a regular savings account to save for your child’s or your own university education will usually shield the lowest gains. That’s because the interest rates are usually low and the accounts often get taxed. If you’re saving for your own studies and don’t have children, however, this might be your only savings account option.
Individual Savings Accounts (ISAs) are best if you’re saving for a long period of time and won’t need to access the money right away. You will get the best interest rates from fixed-rate cash ISAs, which lock your money away from a period of one to five years. One of the best accounts with competitive fixed rates at the time of writing is Shawbrook Bank’s 5-year fixed-rate ISA. This account has an interest rate of 1.30% and offers tax-free savings on up to £20,000 each tax year.
Flexible or easy-access ISAs offer lower interest rates (usually under 1%) in exchange for the flexibility to access your money at any time. Most accounts have a minimum amount you can withdraw, which can be anywhere from £100 to £500.
2. Children’s savings accounts
Saving for university through a children’s savings account is easier and pays better than using a regular savings account. Children’s accounts come with restrictions but offer higher interest rates than regular savings accounts for adults. For example, the Coventry Building Society offers a Junior Cash ISA tax-free account with a 2.95% interest rate. This is a long-term, no-access cash account for all children under 18 who are UK residents. Once the child turns 18, they can access the money directly.
Halifax’s ISA has a 2.45% rate and similar conditions, while the Virgin Young Saver account has a lower rate at 1.75 % but allows early withdrawals as long as the money is used for the benefit of the child.
Parents entitled to child benefit are allowed to invest or save that money in these accounts.
3. Short-term fixed-rate bonds
If you have a significant amount of money to put aside at once, saving for university with a fixed-rate bond might be a good move. Bonds offer higher rates than savings accounts, leading to better gains over time. Plus, bonds carry a guaranteed interest rate as well as a redeeming rate. This means that when the bonds mature, the bank or broker will buy them back from you at full price. The maturity date can be anything from 18 months to 5 years, depending on the bond.
For example, RCI Bank offers a 5-year fixed-term savings bond with an interest rate of 1.40 per cent and a minimum deposit of £1,000.
In the end, it doesn’t really matter where you keep your money, as long as it’s not under a mattress at home. Banks and building societies offer at least some return on your savings. Also, start saving for university as soon as possible, even if you’re only putting £25 away each month. Over months and years, it all adds up.
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