We show you how to compare the best saving for university accounts to make funding university for your children achievable.
Saving money for university was vital even before the 2012 tuition fee hikes that most universities have put in place.
Now, funding higher education must also take into account soaring tuition fees that have as much as tripled as well as all the other ongoing student living costs associated with living away from home.
This means saving for university fees is a real concern for prospective students and parents alike.
However, while the best way to save for university fees will depend on a number of factors and your personal circumstances, choosing a top university savings account can help you towards that goal. Here’s what you’ll need to consider:
How long is the account term?
Depending on how close higher education is, you’ll have different saving options available to you.
If your children are young then a long term savings plan will give them a vital helping hand when they start their studies. In this case you’ll be able to consider child savings for university that tie your money into the account for a longer period of time, e.g. 4 or 5 years.
In general, better long term savings rates are available with longer term accounts, although you may be unable to access those savings during the account term. Check for any interest penalties attached to withdrawals and weigh up if you’d be better off with a shorter term or easy access account for the time being.
For older children your saving for children’s education will need to be on a shorter timescale; if they’re just 2 years away from university or you’re saving for yourself, only an easy access or shorter, 1 or 2 year fixed rate account will be suitable.
What’s the minimum balance for the headline interest rate?
The top interest payable on a saving for university account is usually only available with a minimum account balance – which often counts as its minimum opening deposit too.
While a savings account for university fund will generally accept higher opening balances, you’ll need to make sure you can at least afford that first deposit and maintain its minimum balance, or you’ll miss out on the best rate.
Which type of account is best?
You’ll have a number of account options to use for your university savings – including Cash ISAs, Fixed Bonds, Offshore Term, Regular Saver and Instant Access accounts.
Cash ISAs are tax free, and can also offer easy/instant access accounts without penalties if you withdraw money – however these tend to be for shorter terms and pay lower interest.
You’re also only allowed to pay into a single Cash ISA each financial year (and only up to £5,640 in total). So, if you’ve already used your allowance you’ll need to look elsewhere.
Fixed rate bonds offer high, guaranteed interest for the account duration, subject to tax. However, in exchange for a better rate they often prohibit subsequent deposits and cash withdrawals for a set period, so make sure you’re happy to tie your money up in the account for the full period.
Offshore term accounts offer some relief from tax (paying it at a later date rather than on each interest payment). This means they can offer higher interest rates, although they often require high balances/opening deposits to be eligible and your money is inaccessible for the full account term.
Regular saver accounts are specifically targeted at anyone wanting to save a set amount on a regular basis. They can be ideal if you don’t have a lump sum to invest immediately.
They usually let you make additional deposits online, with cash or by standing order, although they are sometimes only available to existing current account customers.
Instant access accounts let you deposit or withdraw money instantly and without penalty, great if you might need access to your money a short notice. However, in return for easy access, they usually offer lower interest than rates available elsewhere.
How to choose the best university savings account
Compare the features of each account and exclude those that don’t meet your needs. You’ll need to consider how long you’ve got to save, the interest rate and the minimum balance, as well as the type of account that’s best for you.
You should be aware of the compensation schemes each account is affiliated to, especially if you have savings elsewhere. Compare the compensation limits offered by each license and check if your total savings would be covered with that bank.
If your savings would top a license’s compensation limit then exclude that account. Read our guide, Which Banks Count as One Under the Financial Services Compensation Scheme? for information on the FSCS (covers most UK accounts).
Choose an account that offers your money the most security, lets you save in the way you want to and gives the best rate of return – and start saving! Take a look at our University Savings Accounts comparison table.