What is an education fund?
An education fund is an account created for the purpose of funding the education of your children. This fund is created by committing an amount of money to a financial institution with the expectation of gaining a profit over the long haul. Basically, saving up for your child’s education while earning profit on the capital put away for this endeavor. An education fund can also be a form of life insurance, to ensure an education for your children if something might happen.
Why education funds?
Let’s be honest. Education does not come cheap and no matter how much parents try to save up on their own, with rising costs, it can be difficult to keep up. Education funds are designed for the purpose of creating possibilities without obstacles. This fund is needed to maintain a steady growth on capital, focussing on a targeted amount of funds to be reached and used for education. Most education fund policies are inaccessible, which is exactly the point. Although this is an obstacle for a lot of people, having an education fund not only encourages disciplined saving but can also be an efficient way to invest tax free as some financial institutions offer tax free investing.
2 different types of education funds
Tax free accounts
This an effective way to invest into your long-term goals (future education) while receiving a full investment return without any tax on the profit earned. Most tax-free accounts give the account holder immediate access to the capital - whether you are depositing money or withdrawing money.
Standard education investment
Long term investment are ideally for the parent who is planning to save/invest an amount of capital for a minimum of five years. Within these accounts, higher interest is received and the funds are untouchable. This will allow you to save even if you do not know how.
Where to start?
There are a few things to take into consideration when thinking about investing into your child's’ future. The following questions and points will determine the amount of investment that should be made as well as the time of investing.
- When will your child start with school?
- Public or private school?
- What year will your child begin his/her tertiary education?
Education inflation, today, is higher than education itself. An account/ investment with a targeted goal will help you manage and ensure a profit which is most likely to have good returns.