Hi. I’m 36 years old, earn £85k, and have about £40k savings in the bank, mainly in an old ISA that I’ve done nothing with. I am embarrassingly bad when it comes to savings and investments so keen for a steer. I have a five year old daughter and would like to put my savings somewhere clever so they start to do something useful by the time she starts at an independent secondary school and fees go through the roof. Any bright ideas please?
Private school inflation rises are often far greater than your loaf of bread rises. Cash isn’t always best and planning ahead is key, so great timing to be thinking about this. Fees increased by 3.4% last year and I can guarantee you aren’t getting that kind of return on your old ISA, which means your money is decumulating in buying power.
Your ISA options
You could retain the money in your own ISA (which would make sense as a higher rate tax payer as you won’t have any capital gains tax to pay, nor will you have to put it on your tax return). This also gives you control of the money. Other options such as Junior ISAs will only be accessible from age 18.
If your “old ISA” is in cash, consider the merits of transferring this to a stocks and shares ISA. You have more than the recommended minimum time to invest to be able to ride out the volatility of the markets. Over 7 years you could start off more adventurous with the view to reduce the volatility and risk as you come to the time when you may need to take money out to fund her schooling. If you are concerned about risk think about investing in lower risk investments such as government bonds. These are readily available on the market in ready-made portfolios that are easy to set up.
Other bits and pieces to be aware of
Some schools will have annual payments, some termly, so be prepared to withdraw the money at a time that suits you. Some private schools offer the option to pay in advance as a lump sum, known as ‘advance funding.’ This could protect you from hefty inflation rises on fees in the future and help you time a withdrawal.
Boring Money have some great resources for you to read to weigh up which investment proposition may be best suited to you. Once you have chosen an investment company, you would need to complete an ISA transfer form with them to transfer from cash to stocks and shares. This won’t affect your allowance for this year so you could continue to add to this investment in a very tax efficient way. (£20,000 for this tax year).
You should also consider making sure that you have a Will as the ISA is in your name but intended for your daughter. That way you have worst case scenario covered.
Pros and cons of Cash ISAs versus Stocks and Shares ISAs
- Instant access (or after a fixed period)
- Receive a variable or fixed interest rate
- Great for emergency funds or short-term homes for savings
- Readily available
- Not great for long term growth potential
- Poor interest rates
Stocks and Shares
- Much better opportunity to grow over the longer term
- 1000’s of investment funds available at low cost
- Investments ranging from low risk (yes you don’t have to accept high levels of volatility) to more adventurous
- Access is normally gained within just a few days (gone are the old-style investment days of having no or ltd access!)
Finally, don’t forget to consider scholarships to help you with fees. Around 1/3rd of independent schools have funding for this.