In a recent ‘Ask Me Anything’ episode of The Martin Lewis’ Podcast, Martin answered the question ‘How much should parents save for their child to go to university?’. In his answer he explains that it’s not the course fees parents need to worry about, it’s actually the living costs whilst your child is at university.
He explains that the Maintenance Loan that covers the cost of living is up to £9,000 a year if your child still lives at home, £10,500 if they live away from home and £14,000 if they are in London. However this amount is means-tested against family income and starts to reduce if the total family income is above £25,000. At £65,000, your child will receive about half of the full Maintenance Loan.
This gap in the student loan payment is effectively a parental contribution. Depending on where your child is living e.g. at home, away from home or in London, the gap could be £4,000 - £7,000 a year. That’s up to a total of £21,000 for a three year university course, even if your child is taking out the full Tuition Fee student loan to cover their course.
Martin’s advice is that having some savings available for when they reach 18 would clearly be very helpful. We wanted to add a couple of our own tips on how to save for university.
Stocks & shares or cash
A Junior ISA is a great way to save for university for your children as any growth in value or income are free of tax. Any savings are also locked up until the child is 18 meaning you won’t be tempted to dig into their university fund!
If you’re looking at Junior ISAs for your child, you’ll see both cash and stocks & shares options.
A stocks and shares Junior ISA invests the money in a range of investment products, such as stocks, bonds, and funds depending on what is offered by the provider.
A cash Junior ISA is similar to a regular savings account and holds money in cash, usually earning interest.
If you opt for stocks & shares there is a risk that you could end up with less than you put in but evidence suggests that, over the long term, stocks and shares tend to outperform cash as the returns can compensate for the ups and downs.
For example, over 130 years the probability of equities out performing cash was 70% over any 2 years and 91% over any 10 years. Source: Barclays Equity Gilt Study 2024.
In some years cash would have significantly outperformed equities but over the longer term it was the other way around, which is one of the reasons why many people choose to put their pensions and other longer term savings into investments rather than cash. A Junior ISA can last up to 18 years depending on when it was started, so stocks and shares may be a better option if you are comfortable with the risk.
Family can contribute too
If your kids are lucky enough to have grandparents or other family and friends that would like to contribute to their savings then Junior ISAs and other types of children’s accounts can accept contributions from others. How easy it is to do will vary from provider to provider.
With Beanstalk it’s very simple for friends and family to save directly for your child. For one-off financial gifts for a special occasion, Gift Links are ideal or for multiple or more regular contributions, you can invite them to link directly to the child’s account.
Start as soon as possible
The earlier you start the better when you are saving for university. Alex King, founder of Generation Money founder explained why in an article he wrote for us earlier this year. The key benefit to starting as early as possible is the power of compounding. Not only do contributions you make early have more years to grow, you also benefit from growth on growth i.e. returns you earned in previous years also generate their own returns.
You can find out more about the Beanstalk Junior ISA here and more about Junior ISAs in general with our free JISA guide.