Savings account

Many families looking to save for education consider opening a specific bank account for ongoing savings.

Key features

  • Account is readily accessible and can be quickly set up by visiting your local branch.
  • Help you become disciplined in your savings habit by setting up regular contributions.
  • You can withdraw money when you need it, but you need to be disciplined to ensure it is for your child’s education.
  • Interest rates earned on savings can be very low. If the interest rate is lower than the inflation rate, then your savings are effectively going backwards as the costs of education will be rising faster than your savings are.
  • Any interest that you do make on the account will also be taxable in your own hands at your marginal tax rate.
  • All earnings are taxable at marginal rates.

Saving for education is a long-term consideration and you want to ensure that your savings are working for you.  Make sure you are getting a competitive interest rate and consider alternative options once you have saved enough to make a lump sum investment into a more attractive investment option.

It is good practice to set up a separate bank account for your education savings rather than using existing accounts to track your progress and keep the savings separate from your day to day financial needs. 

Term deposits or high interest savings accounts

Term deposits and high interest savings accounts are offered by banks and other financial institutions. Like savings accounts, term deposits and high interest savings plans are a relatively simple way to get started saving for education. 

Key features

  • Can be started at any time and a low starting balance is required.
  • Can be restrictive on when you can access your monies or introduce some costs of accessing funds prior to the end of the investment period.
  • Term deposits and high interest savings accounts do offer some benefits in that access to the accounts is restricted to a certain degree, meaning that you are less able to tap into those earnings for day to day costs or other discretionary spending that would otherwise erode your education savings. 
  • As a trade-off for having limited access to the funds, term deposits and high interest savings accounts tend to pay a higher rate of interest than savings accounts.
  • Interest rates offered are not attractive in periods of low interest.
  • Like savings plans, your interest is taxable in your own hands at your own marginal rates, effectively reducing the overall return on your investment.
  • All earnings are taxable at marginal rates.
  • Access to money is limited to end of deposit period.
Some penalties apply if you do not reach savings targets or withdraw funds early.
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