Saving childcare allowance for college years

Q&A: Should I keep putting the child benefit in An Post Childcare Plus account?

 

I am currently saving the child benefit allowance which I receive for my two teenage children in An Post Childcare Plus Accounts.

I am in a position to continue saving this monthly benefit and do not intend to cash in the savings until my children are at college (in five years +).

Should I continue saving in the Childcare Plus account or would it make better financial sense to invest the money in another savings scheme?

– Ms U.D., Sligo

If I had hard and fast rules of investing, top of the list would be not to invest in accounts marketed for specific purposes such as childcare, education, etc. In my experience, all too often the return on such accounts is invariably worse than for similar effectively identical investments that do not have the specific marketing tag. I presume this allows for the cost of the marketing itself.

Having said that, for people who are not comfortable taking any risk with their savings, your choice of An Post is certainly competitive generally – most particularly because you are not having your paltry gain hit by Deposit Interest Retention Tax at a rate of 39 per cent.

Yes, this is down from 41 per cent last year and it is going to fall further to 37 per cent next year and 35 per cent the year after but it still knocks a big hole in your return when you are getting interest of less than 1 per cent per annum.

Your six-year childcare fund with An Post is currently offering 5.5 per cent return at the end of the period. Essentially, your child benefit is taken each month for 12 months by direct debit. At the end of the 12 months, no further deposits are taken and the savings build up over the next five years.

You could alternatively just invest each month’s child benefit payment in a five-year savings certificate and retain full control of the money incoming every month.

Like the “childcare” account, it is tax and charge-free, and it delivers a 5 per cent return in a year less than the childcare fund. The nominal rate on both is 0.98 annual equivalent rate.

If you are looking at longer-term savings without putting your money at risk of loss, you could always look at the National Solidarity Bond, also offered by An Post.

This is a 10-year product but it offers a more attractive annual equivalent interest rate of 1.5 per cent for a total return of 16 per cent. True, you have to wait 10 years but in today’s poor environment, that rate is attractive – especially when you don’t have to worry about DIRT or any other deductions.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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