As a parent today, you need to be setting funds aside from the time you have a baby – not just for tertiary education but for primary and high school fees too! There are several savings options available to you:
- Fundisa – This is an educational savings account introduced by the government to help you save for education. Geared towards students from low-income families, the fund also features a “bonus” payment by the state into your savings account each year based on how much money you have saved. To receive the maximum bonus of R600, you would have to save R2 400 per year or R200 a month. The means test for the learner applying to save in the Fundisa fund is that their annual household income must be less than R180 000 a year or less than R15 000 a month. The means test, however, only applies to the learner and not to the people contributing to the account so a high-income earner can easily open a Fundisa account for a child from a low-income household.
- Unit trusts – these savings vehicles are ideal as a long-term investment. You can invest in four different asset classes – property, equity, cash and bonds. A balanced unit trust fund will have some exposure to each asset class so that your investment is diversified and you are protected from losses. For example, if equities perform badly in a year, then you can recoup your losses because property might have outperformed the market in the same year. You could also save in a unit trust that caters specifically for education. Benefits of a specialist education unit trust could include flexible payments, the option to skip payments for up to a year and a tracker that calculates whether you need to change the amount you are saving in order to reach your saving goal.
- Bank savings accounts – Shop around and compare interest rates as well as fees. However, the interest rates on bank accounts are typically lower than other savings options.
- RSA retail savings bonds – these are long term savings bonds that you can buy from any Pick ‘n Pay, post office or directly from National Treasury. You can buy a fixed-rate bond or an inflation-linked savings bond. The interest rate you earn is then either determined at the time you take out the bond or linked to the inflation rate. For example, if you took out a five-year fixed rate bond today, you would earn interest at a rate of 9.5% while a five-year inflation-linked bond would earn you interest at a rate of inflation plus 2%. The minimum investment amount is R1 000. One of the main drawbacks of the RSA retail savings bonds has been that it is a once-off investment amount. However, the Minister of Finance recently announced that recurring deposits will soon be allowed.
- Tax-free savings accounts – you can invest up to R30 000 a year in a tax-free savings account. The money you invest in these accounts is not subject to capital gains tax, interest income tax or dividends tax. As a parent, you can also open tax-free savings accounts for your children, which means a family of four can save up to R120 000 a year in tax-free savings accounts. This makes these accounts an ideal savings vehicle for education.
- A transactional swipe and save account – for example, Old Mutual offers the Money Account. The account has a “swipe and save” feature, which allows you to channel up to 15% of your daily spend to a savings account every time you swipe your card. For example, if you choose a 10% limit and you spend R100 for the day, an additional R10 will go into your savings account, which is linked to the Old Mutual Money Market Fund unit trust.
- This article was first published in City Press on 12 June 2016.