From unit trusts to tax free plans, here are the different ways for families to save for education.
In today’s modern world, you’re faced with multiple options when it comes to saving for your child’s schooling and tertiary education. One of the best ways to save is by investing in an education plan.
How does an education plan work?
Education plans in South Africa provide you with the opportunity to put your money in an investment vehicle that lets your money grow over the medium- to long-term. The more time you give your investment, the more time it has to grow. Ideally, the plan you select should be simple and flexible, because saving for your child’s future shouldn’t be a struggle.
With so many education savings plans available, you need to choose the option that best fits your finances, which we give more guidance on below.
How do I choose an education plan?
Well, it all depends on a few things. Here are a few questions you’ll need to consider:
Are you a disciplined saver? Be honest, can you pay regular monthly amounts to a savings account without having to dip into it for that absolutely-must-have new flat-screen TV? Or, would you prefer to squirrel your money away for a set time period, without being able to access it?
Are you starting your savings early (or not)? For example, are you saving during pregnancy, or is your child just starting Grade 8 and you’ve realised there’s tertiary education to consider?
How much can you afford to put away on a regular basis? If you’re not sure, try this easy-to-use education plan calculator. It can provide valuable insight into your current financial situation, and highlight areas you need to pay attention to.
Being able to have access your investment can be really useful the closer your son or daughter gets to university or college. You’ll be able to pay a deposit or acceptance fee (if required) from your investment. Likewise, if your child is going to be staying in digs rather than res, you may need cash on hand to secure a flat or room.
What types of education plans are available?
The types of education plans that are useful here are the ones that are unit-trust based. You can invest directly into a unit trust of your choice or a tax-free plan. Both options offer:
- Tax benefits
- Access to your funds
- Growth opportunities over the medium to long term
An endowment-based education plan lets you save on a regular basis, for a set period of time. You can choose to stop investing and leave the plan as “paid-up” until the maturity date, the date on which the plan pays out. The investment term is usually 10 or 15 years.
Unit trusts and endowments are ideal if you have 10 – 15 years before tertiary education takes place. There’s time enough for your investment to perform and ride out the fluctuations in the market.
Other options include 32-day notice accounts or fixed deposits. The opportunity for growth is a little less but the return is guaranteed. It’s ideal for the scenario of the child who’s just started grade 8 and there’s tertiary education to consider.