The rising costs of learning to drive, and how your savings can help
Getting on the road is becoming more expensive. But it's still a key opportunity for young people. We look at how to make your money go further if you want to help them.
This article gives you information to help you make the most of your money, but it isn’t personal advice. If you’re not sure if a certain action is right for you, please ask for advice.
Last Updated: 6 September 2023
Important information - Information is correct as at 7 August 2023 and is based on the allowances which apply to the 2023/24 tax year. Tax rules can change, and benefits depend on your circumstances.
This article isn’t personal advice. If you’re unsure, please seek advice.
Fixed term products generally only allow access to your cash at maturity. Inflation reduces the future spending power of money.
For a lot of young people, driving unlocks a world of opportunity.
But the reward comes at a cost, and it’s often one of the first big personal expenditures a young person will face.
Costs associated with driving have rocketed in the last few decades. And young people on a low income will be finding it increasingly difficult to cover those costs.
To bridge the gap between rising prices and a low income, nearly half of under 25s receive financial contributions from their family.
We’ll look at where costs currently sit for young people, and how clever saving could let you pass on help when it matters.
Hit by rising fuel costs, most driving instructors increased their hourly rate over the last year. Now, lessons alone can cost £1,350.
Once you’ve included a provisional licence, a theory test, and at least one practical test, the total rises to £1,551.
The price of the average first car has also doubled since the 2000s – to nearly £6,600. Taxing and insuring the vehicle then adds north of £1,100.
That’s nearly £10,000. An eye watering amount of money for a young person, particularly if they are working a part time job.
When to think about investing
If you’re planning to offer a helping hand, consider how long you have until the money is needed.
If your child is still at school and you have more than five years to prepare you could consider investing in a Junior Stocks and Shares ISA. Over the long term, shares generally outperform cash, so it’s more likely to get a bigger return on your money. Plus, because investments are held in the ISA wrapper there’s no liability for UK Capital Gains Tax or Income tax. Currently you can invest up to £9,000 a year but Junior ISA tax rules can change and their benefits depend on individual circumstances.
However, money in the Junior ISA can’t be accessed until the child is 18, whereas the minimum age for learning to drive is 17. So, it may not be useful for teens looking to get behind the wheel as quickly as possible. And unlike the security of cash, all investments will go up and down in value, so your child could get back less than you invested.
When to think about cash
For returns over a period of five years or less a cash savings account could be more appropriate.
But while there are currently billions of pounds sat in cash savings accounts, most of us don’t look far from our current account provider. This is costing us dearly.
At the time of writing, the average instant access rate is 2.24%, meaning £10,000 will get you £224 in interest after a year.
Please note, this figure assumes the rate would stay the same, whereas instant access accounts can change their rate at any time.
The same amount in the average one-year fix rate of 5.05%, gets you £505, a bigger step up.
If you have longer than a year to save, like with the average three-year fixed rate bond - the returns jump to £1,476. That’s £804 more, assuming instant access rates don’t change for three years. Just be aware that you usually can’t withdraw the money from a fixed rate bond before the term ends.
The interest earned alone could cover a full course of driving lessons. And it’s simply down to clever saving.
The interest you earn depends on the rates available for your deposit amount at the time you save. You’d pay tax if your interest exceeds your personal savings allowance.
An easier way to better returns
Learning to drive has staggered costs, and it’s unlikely that the lessons, vehicle, and insurance will be paid upfront.
As a result, you might want to consider timing your fixed terms so you can get the money back when you need it. Fixed terms range from a few months to several years and using them means you get better rates for your cash at each given stage.
Often trying to fix for different terms means searching through rates tables, opening handfuls of products, and juggling multiple sets of logins. If you don’t spend time doing this, you’re usually stuck with a provider who gives you measly returns on your cash.
Seeing fixed terms in one place gives you more control over your savings. Getting better rates on your savings makes your cash go further.
That’s one of the reasons why we created Active Savings, our online savings platform.
We work with multiple banking partners to give you access to consistently competitive fixed terms. And all through a single online account, alongside easy access savings.
There’s a range of terms to choose from, so you can tailor your account around the goals and people you’re saving for.
Products are added or withdrawn all the time, so check our website for the latest rates.
Please be aware, inflation reduces the future spending power of money.
This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).