How best to save/invest on behalf of children

Grace has focused her comments on saving for children’s education.  

The most conservative option would be high interest savings accounts, offered by most banks which normally pay “bonus” interest if you make regular payments into this account. 

This only provides interest returns and if your child is young and you don’t need to access the funds until they are older, this option does not give you capital growth and may not be viable in our current high inflation environment.  

Education bonds are a tax effective option for high income earners (the bond is taxable up to 30% and not added to personal taxable income, and after 10 years are tax free.  Funds can be accessible before ten years and tax is payable on a sliding scale. These days, there are investment options from cash and fixed income to equities within these bonds and you can choose the investment mix based on your risk appetite and investment timeframe.  

Another option is an investment portfolio with a saving plan, set up in the parent’s name. The benefit of a regular dripfeed of contributions means you reduce the average entry cost of your investments over time.  

The investment portfolio is within your control, and you can access funds at any time either for education or other reasons.  

There is also the option to set up a redraw facility against your home loan. 

Before you have school fees to pay, pay additional funds into your mortgage and have a redraw facility against your loan. When the kids start school, redraw the funds for these expenses. The additional repayments sit against your home loan and reduce your overall interest expense.  

Finally, there are estate planning considerations if you are grandparents who want to help with a grandchild’s education costs. Consider having this outlined in your will and estate plan. This helps take the pressure off your children and lets you leave a legacy and outline your wishes that some of the future inheritances are used to help with grandchildren’s education.  

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact your local RSM office.

Note: past performance is not an indicator of future results.

This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.

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