School fees planning

Many parents are now deciding to educate their children privately - but few can afford the fees from their salary income alone.

Typical school fees are around £3,500 a term, so 13 years' worth of education is going to cost close to £175,000. This is also taking modest inflation into account, since many schools increase their fees to a higher rate than inflation.

Even if you're planning to keep your child in a State primary school in the early years, seven years of private secondary school could cost over £100,000 for one child alone - and don't forget that you'll have to pay extra for sports, trips, stationery and uniform.

So the sooner that parents start saving, the better. There are several kinds of investment that could help you  cover the high costs of private education. For starters, if you save into a stocks and shares ISA (also called an investment ISA) every month from when your child is born, you will have built up a reasonable lump sum by the time your child goes to school - and it will be completely tax free. The minimum amount required for investment can be very small but there is a limit on how much you can invest in an Isa. This tax year (2011-2012), you can put in up to £10,680 but this will increase to £11, 280 in April for the next tax year.

You can also use a Junior Isa as a way to save for school fees, though you will probably need to start from birth or infancy. A downside to this strategy is that you are not allowed to put in as much into a Junior Isa as you are with an adult version – just £3600. However, if you choose to use the whole amount for stocks and shares, you could build up a decent amount between 5 and 10 years.   

There are also special school fees plans but these often depend on using insurance policies and can be inflexible and expensive. It might be better to consider savings plans designed for children – these should be invested in a well-balanced portfolio with minimal exposure to risky assets or markets.

However, as with all investments, you need to bear in mind the risk that you might get back less money than you put in, and should seek independent financial advice to help choose an appropriate investment. Also keep in mind that you can move the money built up between investments – you don't have to stick with your first choice for the entire time. You can find a regulated adviser by filling in a form here.

 

University fees planning

 

Going to university is becoming increasingly expensive - and it's not going to get any cheaper. From September, universities can charge up to £9,000 a year for fees. Students will also have to consider their living and potential costs as well.

If you think your child will go into further education, you need to start investing for that eventuality now.

If you've got at least five years to go before your child is 18, you can invest just as you would for school fees in a stocks and shares ISA. Put in regular monthly amounts and the closer you get to the time when you'll need it, be prepared to move your money into cash. Alternatively, you could use a Junior Isa for this purpose – although the maximum investment is only £3600, parents who can afford to invest more for the long-term could reap the rewards of  a   much larger nest egg while still keeping their own personal savings intact.

Whether you choose to invest in an adult or Junior Isa for university fees, it is best to use as much of the allowance for stocks and shares as possible. Equities have historically provided a much better return in the long-term than cash, especially if inflation remains relatively high.

If you have a long time to go before college beckons, you should consider your appetite for risk and whether you'd be bold enough to invest in more racy markets or assets. These investments won't provide the safety and security of a NS&I, for instance, but if you (or your fund manager) judges the markets correctly, the potential gains could be much higher. Moreover, since you're investing monthly, you should iron out the peaks and troughs in the market over a longer period. Examples of more adventurous investments include emerging economies and small to mid-cap businesses. It is advisable to read investments news on out site and expert opinion on a regular basis if you're going to dip your toes into more adventurous markets - this way, you are likely to be better informed about sectors with future potential. You should also ask a financial advisor if you're not sure how much risk you want to take with your children's savings.

If your child has only just decided they want to go to university in a couple of years' time, it's probably too late to invest for big returns. Instead, use cash ISAs and save as much as you can – this strategy will help you to cover at least some of the costs.