It's an expensive thing to put your child through private school and/or university, so the sooner you start saving, the better, writes FIONA REDDAN

THE RECENT removal of a student from a fee-paying girls school in Dublin for non-payment of fees has thrown the difficulties people face in meeting the costs of education into sharp focus.

While for most of the population private schools aren’t on the agenda, a “free” education in Ireland still costs money when you factor in necessities such as uniforms, books and registration fees.

Last year, for example, Bank of Ireland estimated that educating a child in the public system to third-level costs about €60,000.

With university fees likely to be reintroduced, parents may need to have substantially higher savings for those expensive years.

So, how much do you need to save and what are the options on the market to help you build an education fund?

The first step in creating a savings plan to educate your children is to estimate how much money you may need. To reach this number, you should take into consideration the type of school they will be attending (public or private), the possibility that fees will be reintroduced for third level, your time horizon and, of course, inflation.

HOW MUCH WILL IT COST?

Last year, Bank of Ireland estimated that the annual cost of attending a public primary school was about €1,200 a year, taking into account such costs as transport, uniform, books and food. For secondary school, the annual costs rose to more than €2,000. So, to educate a child all the way up to the Leaving Certificate will cost you about €22,000.

However, for many parents, the cost will exceed the above as children going to private schools will also incur fees. Since the removal of university fees, applications for private schools have soared, but so have their prices.

For example, the cost of attending Mount Anville on Dublin’s south side is €5,200 a year for its junior and Montessori school, falling back to €4,900 a year for secondary school.

On average, parents can expect to pay about €4,000 a child a year for private school. If you include transition year, this brings the cost up to €24,000 a child for secondary school only, or €56,000 for both primary and secondary.

On top of the aforementioned everyday expenses, this would bring your expenses up to €78,000 – all before university!

At present, there is no charge for third-level education in Ireland, apart from a registration fee. However, at about €1,000 a year this isn’t cheap. The cost of attending college for students living away from home is estimated at about €8,500 a year by Dublin Institute of Technology.

Moreover, university fees look to be firmly back on the Government’s agenda. At present, UCD charges about €6,500 a year for students from the European Union who do not qualify for free fees, rising to €12,780 for medicine.

If these fees are introduced across the board for Irish students and you don’t qualify for a grant, the cost of attending university for a child living away from home will jump to €60,000 over the course of four years.

So, to educate a child all the way up to third level will cost you almost €60,000. If your child is educated privately, you can double that figure and if third-level fees are reintroduced, you can add anywhere from between €26,000 to €51,000 depending on the course pursued.

HOW MUCH DO I NEED TO SAVE?

When it comes to putting money aside for your children’s education, two things are key – starting early and saving consistently.

The best place to start is with child benefit, although this has become less attractive of late. The current rate for child benefit is €166 a child a month for the first two children, rising to €203 a month for any further children, but from January of next year, children aged 18 will no longer qualify.

Moreover, the Government is considering either taxing or means-testing child benefit and it is also phasing out the early childcare supplement of €1,000 this year.

Nevertheless, for a family with one child, saving this amount each month from the time the child is born and get a return on your money of 4 per cent, you will have a nest egg of some €52,000 by the time the child is 18 – almost enough to pay for college, even if fees have been reintroduced.

Of course, you will have to index-link your monthly contributions to keep up with inflation (because this isn’t something that will concern will the Government in the short-term!) to ensure that you keep up with the rising costs of education, and you will also have to deduct Dirt at 23 per cent from interest earned on the account.

If you take more risks with your investment and manage to achieve an average return of 8 per cent per year, then your nest-egg will be closer to €80,000.

Throwing in a lump-sum can also make a significant dent. For example, if you still haven’t spent your SSIA savings and you have €20,000 lingering in a low-paying account, throw this into your education fund on top of the monthly child benefit contributions and over the next 18 years you will have €92,700 saved.

If your child is very young and will be going to a private secondary school, you could also consider diverting creche fees once the child starts primary school to your education fund. With fees running at about €1,000 a month, saving €1,166 every month would give you a nest-egg of about €130,000 by the time the child is 12, which should be enough for college as well.

If your children are already in secondary school and you are terrified by the thoughts of having to pay college fees, you still have time to get prepared. If you save €500 a month, at a rate of return of 4 per cent, you will have a fund of €26,000 after four years – enough to pay fees for one child at least.

Of course your children will also be to able to contribute themselves to costs by working part-time or during the summer.

WHAT SHOULD I INVEST IN?

Several financial institutions offer a variety of savings products dedicated to helping pay for education. Deposit accounts are often the most popular, but beware of the fine print.

One way banks look to attract customers is by offering an attractive regular savings rate, but it then moves all the funds into a lower-paying account at the end of each year. For example, Halifax’s Child Saver account currently pays 3.75 per cent on savings of between €10-€200 a month.

However, at the end of each year the savings and interest are swept into a different account, where the lump sum earns interest at just 0.5 per cent.

AIB’s Parent Saver account is a similar product. It offers 5 per cent on monthly savings of up to €200, but again, at the end of each year of saving, the balance is automatically transferred into a deposit account again paying just 0.5 per cent.

To get the most out of such accounts, you need to stay active and switch your lump sum into a better paying account at the end of each year. For example, at the moment Investec is offering a 12-month fixed rate of 4.5 per cent on deposits over €20,000.

The difference between saving child benefit every month and earning a rate of return of 4 per cent compared to 1 per cent over 18 years is a whopping €12,900. So it pays to keep shopping around for the best rates.

While deposit accounts may be best suited to parents with older children, if your children are very young you might do better by investing in the stock market.

To avoid a situation faced by many people today who can not liquidate their share holdings because of the massive drop in values, it is generally advised to only invest funds in the stock market that you don’t need access to for at least five years.

So, if you have a baby, you could save for their college funds in the stock market until they are about 13, and then switch over to a safer deposit account.

If you have a teenager already, you’re probably best to stick with savings accounts.

Like savings accounts, there are some stock market-based products dedicated to saving for an education but again, this doesn’t mean that they are the best choice.

For example, Bank of Ireland offers SmartChoice Education, a regular savings plan linked to the stock market which includes a 25 per cent loyalty bonus for those who commit to saving regularly for a period of seven years.

If you save €166 a month therefore, you will be due a bonus of €498 after seven years.

However, fees for the funds available are expensive, which can mitigate the benefit of the bonus. For example, contributions of up to €12,000 a year are charged a fee of 5 per cent, while the fee goes down to 3 per cent for any contributions over this level. In addition, an annual management fee of 1.5 per cent is also charged.

So, if you invest €1,992 a year (12 x €166), the cost of running the fund alone will be €129.48 in the first year. By the time you receive your bonus, therefore, you will already have spent more on charges then you will receive from the loyalty bonus – and if you keep the fund running for 18 years, the charges will eat away at your returns.

A cheaper option therefore, would be to consider an index-linked or “passive” fund, rather than a more expensive actively managed one. For example, Quinn Life’s Pride ’n’ Joy Freeway product allows you to access the full suite of the firm’s funds by making monthly contributions starting at €50.

There are no transaction charges on regular premiums, and annual management fees start at 1 per cent a year for funds such as its European and Irish equities. They rise to 1.2 per cent for US, biotech and technology funds.

RaboDirect also offers a range of funds at more competitive rates, with a 0.75 per cent entry fee and a 0.7-2 per cent annual management fee. Investment opportunities are diverse and from €100 a month, you can pick funds which invest in healthcare equities, German equities and global property, for example.