Tax and your education savings plan

20/08/2019

Tax and your education savings plan

Alongside saving for retirement, children’s education is the one of the major life events parents plan for. There are so many options available when it comes to an education savings plan. Choosing the right one can make a huge difference in helping you achieve your desired objectives.

For most of us, there is no single solution for the rising costs of education and the related costs of living. We would need a combination of specific savings and investment plans to eventually build a reasonable amount of money to support future education funding. Remember, it’s not just education funding you need, but also funds to help your child maintain a good quality of life while they’re studying.

Get your kids involved

It’s a good idea to introduce your child to concepts such as saving early in their life – it gives them a good head start and sets them up for financial success. Let them know about your education savings plan and what you’re doing to prepare for their future. Teach them about saving and financial planning early on in life. Consider giving them the responsibility of a student savings account when they’re a teenager. A student savings account takes money management to another level and will teach them important skills for their life.

Answer these questions

Planning for your children’s education isn’t easy, but knowing the answers to these questions is a good starting point:

  • When would we need the money?
  • How disciplined are we with our savings?
  • What is our risk appetite for investment?
  • What is our current financial situation?
  • What is our personal tax position?

A tax-free savings account is a good start

Consider using a tax-free savings account to build an education fund, depositing up to R33 000 per year and up to R500 000 over your lifetime. Tax-free investments are an incentive to encourage household savings and they’re a good opportunity to build the future for our children.

With African Bank’s Tax Free Investment interest rate of 8.67%, if you save R500 per month for a period of 10 years, you could build up almost R100 000 during this time. (Rates correct at time of publication. Consult your tax practitioner for actual tax savings.) With the right planning, this pay-out could come just in time to help make your child’s university dreams come true.

African Bank’s Tax-Free Investment account has a one-day notice period and can only be accessed once a year during the anniversary month of the account being opened. This encourages longer-term saving without worrying about being taxed. You can build your savings by making as many deposits as you like and there is no limit to the term of your tax-free savings account. The minimum balance is R500.

Build a diversified investment portfolio

Instead of a high-risk investment, many people are favouring more stable investment options. To create a diversified investment portfolio, consider additional investments such as fixed deposits, unit trusts, retail savings bonds, certain endowment policies issued by long-term insurers, linked investment products and Exchange Traded Funds (ETFs).

Every parent wants to give their children the best starting point in life, so growing your savings and planning for education is of utmost importance. Although educating children often comes with a hefty price tag, saving for your child’s future is a straight-forward process. Once you’ve decided on a preferred savings plan, choose a bank that you trust, as well as one that offers the best interest rates.

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Our mission is to be a successful Retail Bank offering a wide range of products and services to the consumers of South Africa. The people who work for African Bank represent the diverse population of South Africa; therefore we are a reflection of you, of all South Africans. We seek to provide value - more than our consumers expect of us. We promise to live our purpose 'humanity through banking' in all that we do and we are confident that we can, because 'We are You'.