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Your child’s £50,000 dilemma?

How to help your child save towards university


Important information – Investments can go down in value as well as up, so your child could get back less than you invest. Once inside a Junior ISA, money cannot normally be accessed until the child’s 18th birthday. ISA tax rules can change and their benefits depend on your child’s circumstances. If you’re unsure which investments are right for you, please contact us for advice.

Henry Irving
Junior ISA Account Manager

A Level results are out.

All across England, Wales and Northern Ireland, hundreds of thousands of students are discovering how they fared in their exams and if they’ve secured a place at their choice of university. It’s an exciting time for many as they embark on this new chapter in their lives.

But this new chapter could come at a hefty cost.

When you tally up the costs of tuition, accommodation and other living expenses, the average student in England is leaving university with debts of around £50,000 according to the Institute for Fiscal Studies (IFS). This could be even higher if you go to university in more expensive areas, such as London.

English student debt (almost) highest in the world.

Since the government raised tuition fees to £9,000 for new students in England in 2012/13, debt has piled up for graduates. Figures from the Student Loan Company show that the amount of student debt has more than quadrupled in the last 10 years and the average loan amount is higher than any other country with data on the subject.

Source: House of Commons Library, 6 February 2019

And don’t forget about the interest…

If the rising level of debt isn’t worrying enough, the interest rate on servicing the debt can be equally painful for graduates. UK interest rates on student loans – currently ranging between 3.3% and 6.3% – are considerably higher than in other parts of the world.

The interest charges start kicking in from the day they receive their first payment meaning they will have run up thousands of pounds in interest charges before they’ve even left university.

There’s also no telling if these charges might rise in the future.

Interest rates are linked to the rate of inflation (RPI) and if inflation rises from current levels, the total amount owed will be greater.

Start saving early

Naturally, friends and family will want to lend a helping hand to ease the burden on the child of paying for university fees. And if you’ve got a few years until your child flies the nest, you’ve got the benefit of time on your side. The sooner you start, the longer your savings and investments can take full advantage of a phenomenon known as compound interest.

Using a debt of £50,000, the table below illustrates how starting sooner rather than later results in lower monthly payments as well as higher total investment growth. The example assumes an annual growth rate on your investments of 5% and doesn’t take into account inflation or charges. Please note, this is just an example and not a definitive guide on what you should expect to achieve from your investments. All investments rise and fall in value, so your child could get back less than you invest.

Period of investment Monthly investment to reach £50,000 Growth
5 years £735 £5,946
10 years £323 £11,302
18 years £145 £18,946

Junior ISAs

Henry Irving
Junior ISA Account Manager

The perfect way to save for university costs?

Junior ISAs are one of the best ways for parents and grandparents to help save towards the costs of university.

Whether you choose to save as cash or invest in the stock market, all the money is free from UK income and capital gains tax. This makes it a tax-efficient way to build a pot for a child’s future.

Junior ISAs: a summary

  • Tax-efficient way to save for a child – no UK income or capital gains tax to pay on savings and investments
  • All children living in the UK and under 18 are eligible. If your child was born between 1 September 2002 and 2 January 2011, they’ll need to transfer their Child Trust Fund (CTF) in order to open a Junior ISA (see below)
  • Two types of Junior ISAs available: cash and stocks & shares
  • Contribute up to £4,368 for the 2019/20 tax year
  • Only a parent or legal guardian can open a Junior ISA for their child, but once opened, all friends and family can contribute to the account
  • When a child turns 18, their Junior ISA automatically converts into an adult ISA. They can then choose themselves how to use the money
  • Junior ISA rules allow children to manage their own account from age 16 (with the agreement of the Junior ISA provider), although they cannot withdraw any money until their 18th birthday. Some providers, including Hargreaves Lansdown, do not permit children under 18 to manage their account.

Tax and ISA rules can change and benefits depend on your child’s circumstances.

Find out more about the Junior ISA

Cash or stocks and shares Junior ISA?

The answer to this largely depends on the length of time you’ll be saving for and how much risk you’re prepared to take.

A cash Junior ISA is often more appropriate for shorter-term savings (i.e. less than five years). If your child will need the money from the Junior ISA in the next five years – such as university fees – cash is likely to be your best option.

But if you’re saving for over five years and you’re happy with the risks, you might want to consider investing in a stocks and shares Junior ISA. This allows you to invest in the stock market which has historically given a better return than cash over longer periods of time. However, please note that past performance is not a guide to future returns and there are no guarantees.

According to the Barclays Equity Gilt Study, if you’d invested in equities over a 10 year period, there’s a 91% chance you’d have outperformed cash over the same period. Please note however that unlike the security offered by cash, investments can fall as well as rise in value so you could get back less than you put in.

Find out more about the Junior ISA

Is every child eligible for a Junior ISA?

Yes, every child who lives in the UK and is under age 18 is eligible. However, if your child was born between 1 September 2002 and 2 January 2011 and you’d like to open a Junior ISA, the registered contact (parent or legal guardian) will need to transfer the child’s CTF to a Junior ISA first. A child is not able to hold both a CTF and Junior ISA.

Junior ISAs typically offer more competitive charges and greater investment choice than CTFs, meaning more potential for greater returns.

If you don’t know where your child’s CTF is held or who the registered contact is, you can check directly with HMRC by visiting www.gov.uk/child-trust-funds

If you’re looking to transfer, please check with your current provider for excessive transfer fees and loss of benefits or guarantees.

Find out more about transferring a CTF


Junior ISA case study

‘It's crucial to save sooner rather than wait’ – Mr H from London

What are your views on the costs of university?

When I went to university, I was lucky that it was at a time where we didn’t have to pay the fees that students do today. The costs have obviously gone up in recent years and I don’t expect them to go down from here as there’s still a great demand for people wanting to go to university.

The debate about fees is an interesting one. People often phrase university as a cost but it can be seen just as much as an investment. By going through further education, you’re showing that you’re committed to a career path that will hopefully give you better prospects in the years to come.

Do you think your children will have it harder financially than you did?

Definitely. It’s not just education costs. Once they’ve graduated, they will also face financial challenges as they move onto the next chapters in their lives, such as possible home ownership. To help smooth that transition into adult life, I believe it will be helpful for them to have some savings behind them.

Why did you choose to use a Junior ISA?

It’s tax-efficient. You don’t have to pay UK tax on your child’s investments which is a great bonus. It was also a simple decision administratively as I already had an ISA with Hargreaves Lansdown. I’ve linked the children’s accounts to my own so at the click of a button, I can just go and see their investments which is helpful. You can start to accumulate wealth relatively easily.

The flexibility of the Junior ISA is also useful. If my children decide not to go to university in the end, the money can be used for something else such as buying a car or more importantly, a deposit on their first place. I also like that you can’t access the money in a Junior ISA until the child is age 18 so you know that that money is locked away and ring fenced for their future.

Why did you choose to invest rather than save as cash?

Cash accounts aren’t offering horrendous rates, but they’re also not fantastic. And I think in order for the money to work, it’s important to put the money into stocks that were undervalued or provide some dividend income. Historically, the returns from cash simply haven’t been there over the long term.

I think many people don’t appreciate how accessible investing in stocks and shares is these days. It’s not just reserved for the City of London. Platforms, such as Hargreaves Lansdown, have made it easy for the normal investor.

How did you invest your Junior ISA?

I’m mainly invested in dividend-paying FTSE 100 blue chip companies. More recently, I’ve moved into some emerging technology stocks, which are more growth focused. I wanted to diversify away from investing just in banking stocks and it means I have a mixture of growth and income stocks.

When do you contribute to the Junior ISA?

It’s not predominantly every month. I just tend to save when I have a particular investment in mind or have additional money that might be useful for them. Similarly, I encourage friends and family to try and provide money for their Christmas and birthdays.

It's obviously crucial to save sooner rather than wait. The earlier you start, the more of a cumulative effect you can have on savings. I’ve set up their Junior ISA accounts to automatically re-invest any dividend payments they receive so they can benefit from this compounding effect. Of course, if I only look to finance them to go to university in their teenage years, that’s quite a lot of money to find for two people in a relatively short period of time. That’s why putting the money away as early as possible is so useful.

Have you spoken to your children about money?

My daughter and son are 6 and 8. They know that they have a Junior ISA and that I encourage some of the family to put money into it. But as I’m sure you recognise, they’re not too transfixed on university. I imagine these conversations will come up in their teen years.

Financial education for children is massively important and a core life skill in my view. I don’t believe those lessons were passed to me when I was younger – not that I’m necessarily financially reckless – but I think it’s really important that they’re aware of the value of money and how to save.


Please note that unlike the security of cash, the value of all investments and the income provided by them rises and falls, meaning your child could get back less than you invest. Tax and ISA rules can change and benefits depend on your child’s circumstances.


Investment ideas

Kate Marshall
Senior Investment Analyst

Our experts have hand-picked a couple of investments that we believe would make great choices if you’re looking to invest for a child.

Please note that these funds are not personalised recommendations or advice. If you’re unsure of the suitability of an investment for your child’s circumstances, seek advice. All investments fall and rise in value, so your child could get back less than you invest.

Schroder Small Cap Discovery

We think most long-term portfolios should have some exposure to Asian and emerging markets. These economies contribute a lot to global growth and could benefit from rising wealth and consumer spending. They offer a great opportunity for patient investors who can accept the additional risks and some volatility.

Schroder Small Cap Discovery invests in innovative smaller companies that are based in these areas, or make most of their money there. They could be the giants of tomorrow, and tend to be under-researched and overlooked by most investors.

This provides an opportunity for fund managers who have the time to scour the market to find some hidden gems.

Matthew Dobbs, the fund’s lead manager, has a lot of experience in these areas. He manages the fund with Richard Sennitt and they’ve delivered good returns for investors over the long run. They think lots of developing economies will switch from exporting most of their goods, to focusing on customers in their own countries. So the fund’s invested to make the most of this change. Investing in smaller companies and emerging markets makes this fund a high-risk option though.

We think this fund is unique. It offers something different to other Asian and emerging markets funds, which tend to have a bigger focus on larger companies.

Schroder Small Cap Discovery – performance since launch

Annual percentage growth
July 2014 -
July 2015
July 2015 -
July 2016
July 2016 -
July 2017
July 2017 -
July 2018
July 2018 -
July 2019
Schroder Small Cap Discovery 2.7% 14.6% 15.3% -0.1% -0.9%
FTSE Emerging -3.1% 16.8% 22.4% 5.7% 7.7%

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2019

Schroder Small Cap Discovery Key Investor Information

Find out more about the fund including charges

Schroder Small Cap Discovery


Schroder Small Cap Discovery

Invest now

Kate Marshall
Senior Investment Analyst

Jupiter Income

With this fund Ben Whitmore aims to pay an income, as well as grow the original investment. To do this he invests in companies that pay dividends to shareholders. Dividends are great for investors who need a regular income. But they’re just as valuable for long-term growth investors. If an investor chooses to reinvest the dividends they will be buying more shares, and hopefully get an even bigger dividend next time. Repeating this process over a long period is a tried-and-tested way to grow your wealth although it should be remembered that dividends are not guaranteed.

Whitmore invests in companies that have been through a tougher time, possibly because they've missed a profit target or do business in an area that people aren't interested in at the moment. Importantly he must believe they have the potential to turn around their fortunes and do better in future. Once they recover their share prices could rise, and in the meantime the fund collects any dividends these companies pay.

We like the fact the manager sticks to this process through thick and thin. He has a great track record investing in the UK and used this approach to find a range of companies that have gone on to perform well. But it doesn’t work every time and he isn’t guaranteed to repeat his past successes.

Most of the fund invests in large, dividend-paying companies. Some invests in medium-sized companies that also pay dividends, but could offer more growth potential.

Jupiter Income – performance under Ben Whitmore

Annual percentage growth
July 2014 -
July 2015
July 2015 -
July 2016
July 2016 -
July 2017
July 2017 -
July 2018
July 2018 -
July 2019
Jupiter Income 6.1%* 10.0% 11.9% 8.0% -3.6%
FTSE All-Share 5.4% 3.8% 14.9% 9.2% 1.3%

Past performance is not a guide to the future. Source: Lipper IM to 31/07/2019

*Performance data for July 2014-July 2015 relates to the ‘inclusive’ share class

Jupiter Income Key Investor Information

Find out more about the fund including charges

Jupiter Income


Jupiter Income

Invest now