15th October 2015
Parents looking to send their child to university need to get saving as new research shows that they should be looking to invest up to £228.17 per month to cover the cost for a three-year course in 18 years’ time.
The analysis from Rplan.co.uk, the online investment platform, estimated that the amount needed in 2033 would be £74,307, assuming current fees of £9,000 and £8,000 annual living expenses adjusted for 2% annual inflation.
The numbers shown in the table below, also highlight the importance saving early – reaching the £57,441.79 needed in five years’ time would require up to £735.82 per month.
By comparison, the average easy access ISA rate at present is just 1.11% while the best easy access savings account pays 1.65% a year.
Using these rates, parents would have to save £310.96 and £295.82 a month respectively to reach the £74,307.08 target by 2033.
Stuart Dyer, Rplan.co.uk’s chief investment officer, said: “Investors with a longer time horizon 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. That’s no reason to discount investments altogether though, as they typically offer the potential for better returns than cash – 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,” added Dyer.
University fee targets and related contributions:
|18 years (2033)||Nine years (2024)||Five years (2020)|
|Target||Monthly contributions||Target||Monthly contributions||Target||Monthly contributions|