The rising costs of education

School fees increased by an average of 5.90% in 2009, according to the Independent Schools Council.' Termly fees ranged from an average of £3,358 for day schools to £7,748 for boarding schools, although there was quite a range depending on the actual schools chosen.

If you can build up even a relatively modest education fund, you will find it can reduce the pain of the termly bill and tide over periods of financial hardship on redundancy or other difficulties. It is well worth parents saving, and grandparents or other family members can be an invaluable help. Don't forget, leaving school will not be the end of education costs if the child goes on to higher education.

So, what types of investments could the parents and grandparents consider for funding the costs of education?

The most important decision is the asset allocation. The shorter the period to paying the school fees or other costs, the less risk you can afford to take. If you have at least eight years or even longer before you are likely to need to draw on the funds, you can probably afford to think about investing in more volatile investments and you should consider what proportion of your funds should be in equity-based investments. These can go down as well up and their past performance is not a reliable guide to their future returns. Otherwise, you could stick to cash or possibly safe, fixed-interest bonds. However, if you are prepared to accept some risk to your capital, and to commit to investing for at least, say, five years, the returns may be much better than if you want instant access to funds. But, of course, you run the risk of making lower returns, or even a loss.

Tax efficiency is also very important. There is now a wide choice of tax wrappers and the right one will depend on your individual circumstances.

The FSA does not regulate tax advice or school fees planning. Past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up, and you may not get back the original amount invested.

1. Source:www.isc.co.uk/FactsFigures_ Schoo/Fees. htm