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|New parents need to save up to £260.55 per month to send a child to university in 18 years’ time|
|Wednesday, 14 September 2016|
With the academic year now underway, analysis by Rplan.co.uk, the online investment platform, shows that new parents should be looking to invest up to £260.55 per month to cover the cost of sending a baby to university for a three-year course in 18 years’ time.
rplan.co.uk estimates that the amount needed in 2034 will be £74,307.08, assuming current fees of £9,000 and annual living expenses of £8,000 adjusted for 2% annual inflation.
The analysis, shown in Table One below, also shows the importance saving early – reaching the £57,441.79 needed in five years’ time would require much higher contributions of up to £888.29 per month.
By comparison, the average easy access ISA rate at present is just 1.11% while the best easy access savings account pays 1.55% a year.(2) Using these rates, parents would have to save £310.96 and £298.58 a month respectively to reach the £74,307.08 target by 2034.
The calculations assume an annualised return of 3% a year after charges.(3) A medium risk portfolio is designed to produce investment returns to beat inflation over the medium to longer term, ie greater than five years. A higher risk portfolio would offer the potential to achieve a higher rate of return and therefore less contributions but savers would have to be comfortable with more volatility.
Stuart Dyer, rplan.co.uk’s Chief Investment Officer, said: “The cost of studying at university has increased dramatically over the last few years and many parents or grandparents want to help contribute. Parents and grandparents that are prepared to invest at an early stage can typically take more risk. However, even with an 18-year time horizon parents may not feel comfortable with a high-risk approach to investing for their children’s education. Investments typically offer the potential for better returns than cash, though, even when a medium or lower risk approach is selected.
“Saving monthly helps to diversify risk over time – it also allows investors to take advantage of downturns in the market by providing the opportunity to buy investments at cheaper valuations over the long term, known as pound-cost averaging. Our analysis also shows how allowing as much time as possible for investments to grow is key: shortening the time to invest can have a major impact on just how much needs to be saved each month.”
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