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Free Education! You're having a laugh.

The school years of each child now cost €28,000, so you can't start saving Child Benefit soon enough to meet these steep outlays.

Charlie Weston - Irish Independent

Tuesday 2nd October 2006

More and more the sheer expense of putting children through school and university is pushing parents to their financial limits.

This year's school entrants will cost their parents almost €28,000.

...But the good news is that by investing €150 per month (the equivalent to the monthly Child Benefit paid to all parents), parents should be in a better position to fund their five-year through college when the time comes.

It might make sense to use the State-provided Child Benefit to invest in a stock market-related investment product.

If you have 10 or more years to go before you have to start funding university fees, then you can take a medium to long-term view of your investment. The benefits of time could make all the difference.

Equity funds are available from most insurance companies, and are a type of pooled fund that is invested in a mix of assets. Your money is used to buy units in the fund, and you can buy units by making a lump sum payment or by regular savings.

We contacted three investment companies offering specific education funds and asked them to supply us with some likely returns over a 13-year period if parents were to invest their Child Benefit money.

As the table shows, investing the monthly benefit for one child over a 13-year period will give a likely return of between €28,371 (Eagle Star) and €30,505 (QUINN-life) after tax. The tax at exit is 23pc. It needs to be pointed out that the returns are not guaranteed. The examples provided are based on an assumed annual return of 6pc a year, and we have ignored indexation (i.e. an adjustment to take account of inflation).

The return values include all charges and taxes.

With Eagle Star there is an annual management charge of 1.25pc and a policy fee of €3 per month. There is an allocation rate of 95pc. In other words, the other 5pc of each contribution goes on charges (known as a 'bid/offer spread').

For Hibernian's Spectrum Saver Plus there is a minimum monthly contribution of €150. There is a 95pc allocation rate for regular payments and a 100pc allocation rate for lump sums. In addition, there is a 1.5pc annual fund management charge, and a €2.50 per month policy fee. With QUINN-life the only charge is a 1pc annual management fee.

Another way to look at the costs is to seek out what is known as the 'reduction in yield' (or the impact that charges have on the return). For QUINN-life the reduction in yield is 0.8pc, for Hibernian it is 1.9pc and for Eagle Star it is 2.3pc.

Meanwhile, online execution-only discount broker, LABrokers.ie, will sell the Hibernian Spectrum Saver Plus product on a nil-commission basis. For a €105 one-off, set-up fee you can get a 103.5pc allocation rate.

Choosing to save your Child Benefit for your child's education might just ensure that school sums do not test you.

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