Must think ahead when it comes to cost of college

Consumer advice with Gráinne McGuinness

Parents shocked by back-to-school costs for their primary or secondary school children need only read the recent coverage on the price of college to see that it gets a whole lot more expensive when it comes to third level. Between the student contribution charge and higher rents the cost of college can exceed €10,000 per year. To avoid having to borrow, start saving for university while your children are in school. If you have a child starting secondary school, five-six years of saving will make a big difference by the time the Leaving Cert rolls around.

Opening a regular saver account is the best way to ensure you save consistently. All the banks offer some type of regular savings account, but interest rates vary widely. The best on offer currently is 4% from Nationwide UK (Ireland). KBC also offer 4%, but only if you have your current account with them. Without a KBC current account they offer 3%, still comparatively high. EBS Family Savings account pays 2.25% interest, while AIB has online and branch-based regular savings accounts that both offer 2%. Bank of Ireland, Permanent TSB and Ulster Bank all pay interest of 1.5% or less on regular savings.

These accounts all have a minimum and maximum savings amount, generally between €100 and €1000 per month. Some offer instant access while others require notice. Some also offer one or two payment holidays, months where you don’t make a payment. Remember that interest earned is subject to DIRT at the prevailing rate, currently 41%. With any regular savings it is important to do an annual review and ensure you are still getting the best rate.

Away from the banks, An Post also have savings accounts, although their rates are low. The Childcare Save account is useful because you can arrange to have your Child Benefit paid directly to the account each month and also make additional lodgements. But the interest rate is very low, .25% and subject to DIRT. If you have at least six years to go until college their 6 Year Instalment Savings is worth considering. With this account you save between €25 and €1000 per month for 12 months and then leave the balance on deposit for five years. Once you don’t touch the funds you earn 7% return on your savings after five years. That works out at an annual interest rate of 1.24%, which isn’t fantastic, but it is tax free. Start a new one each year for four years and you would have an account maturing for each college year. You can check out these and their other options at statesavings.ie.

Credit Unions reward savings with a dividend rather than interest and the amount paid to members varies from one credit union to another. The return from your savings will be lower than in a bank, but they are very flexible when it comes to loans so it is worth having an account with them. You should have your child open an account with them also and encourage them to save. They may be a good option for him or her to borrow from for college if needs be.

Your child should also be encouraged to save towards college. By teenage years they are largely past toys so if grandparents and other family members give money at Christmas and birthdays why not suggest they lodge directly to the child’s bank or credit union account. Your son or daughter may not be too happy but, if you can get them used to the idea, it will help them build up their own savings. Entice them with tales of the brilliant time they will have with a bit more money in their pocket when they eventually head off to college.

As well as savings it is also worth some long-range planning around your outgoings during the college years. If you could clear your mortgage before then, that would make a massive difference to the household budget and free up a lot of extra money. That may not be possible, but if you pay it down aggressively while children are younger, you would benefit from lower repayments down the line, Similarly, look at any other debts. Aim to have any car or personal loans cleared. If you have a tendency to live in your overdraft or rely on your credit card set yourself a target to have balances cleared before the college bills start. Savings on debit interest is extra money available for other costs.

Deal of the Week

If your credit card took a beating during the summer holidays now is a good time to consider switching your credit card.

Many providers are offering zero interest on balance transfers for a set period when you switch, which gives you a chance to clear accumulated debt at no extra cost. Of all the cards currently on offer in Ireland our number one choice is the Clubcard Credit Card from Tesco Personal Finance. It has an APR of 19.1%, one of the lowest on the market.

Permanent TSB and KBC had slightly lower rates, but what swung it for the Tesco card is that in addition to 0% on balance transfers for six months, it also offers 0% on purchases for eight months. Change now and that introductory rate will be in place for spending in the run up to Christmas and well into the New Year. Result.

And, although taking cash out of your credit card is to be avoided as much as possible, Tesco also have the lowest rate for cash withdrawals, at 16.7%.