Education savings plans

An education savings plan is a specific purpose fund dedicated towards saving for education and which has been granted specific beneficial tax treatment by the government.

Key features

• Allow you to make regular or ad-hoc contributions to the plan and have the funds invested to generate growth on the savings over the longer term. They also allow you to save small amounts of money over a period of time.
• Education savings are kept separate from other investments or savings. This means you are less likely to tap into those savings to cover other costs.
• Cover a broad range of education costs e.g. school fees, uniform, books and extra-curricular activities.
• Earnings from the fund are tax effective. The fund is taxed at 30 per cent and if earnings are used for education purposes, any tax paid is refunded to you.
• Earnings of the fund are not included as part of the assessable income of the parent. This can reduce the amount of tax that you pay on your investment earnings, a key benefit for those on higher tax brackets. 
• You do not pay any capital gains on the fund when you redeem your investment.
• Earnings can also be withdrawn for non-education related purposes, however the tax benefits are not as strong in this scenario.
• Education savings plan tend to invest in shares, property and fixed interest investments for long-term growth and to keep your money as safe as possible. This means you will see ups and downs in response to changes in the investment markets.
• Some traditional savings plans may restrict access to monies and earnings may be foregone if your child does not progress to post-secondary education
• Newer savings plan are more flexible and allow you to access your money as and when you need it, giving you greater peace of mind.
• Establishment and ongoing costs apply.

Read the product disclosure documents carefully and ask questions of the provider to ensure the product is right for you.

Other options

• Insurance bonds
• Managed funds or equities
• Mortgage redraw
• Term deposits and target savings accounts