pay fees in advance or invest???

[Amelia1909]

Hi there
Am really keen to get some views on this..
Got two sprogs in private school. The school are offering 2-3% discount for fees paid in advance (2 years fees = 2% off, 3 years 2.5% off, 4 years 3% off).
We have got £117,000 which I think would just about be enough to scrape the 4 years and therefore attract 3% discount.

My question is - would we be better investing that money or handing it over to the school???? I like the idea of not thinking about fees for 4 years! If we invest it there are tax implications I imagine and we need access to it at least once a year to pay fees (you can pay annually).
Am feeling very confused and overwhelmed at all the options??? I see fixed bonds but they are only offering 0.75-2%.
also worth mentioning that £88,000 of that £117,000 total was a remortgage and costs us £200 a month already. Paying most of it back is also an option????
Any help/advice greatly appreciated..

How are you going to pay fees when those 4 years are up?

Hi there - the plan is to save over the next 4 years and accumulate funds or use rental income to pay down borrowing (ready to refinance in 4 years).

You mortgaged your house
at what percentage rate
to pay school fees
gosh

yep we sure did!
mortgage is 1.79% interest only on a buy to let property not our residential

You have shitloads of money. I'm sure you'll be fine either way.

Ah, so that interest is no longer deductible against your income on the BTL
so gross up by your marginal tax rate
and the tax bill on the rental income

to pay school fees

wow no judgements here then...

Amelia
I just think you are crazy to borrow for school fees.
If you can afford it, do it
but do not borrow for it
as relying on the property market in four years time (Brexit negotiations and all that) to keep your kids at the school they are used to
seems insane

thanks for your view.
I posted on the savings and investments section hoping to get some views on investment options rather than a debate about private school.
We are not relying on the property market per se. We have a partial mortgage on a buy to let we owned outright. There is plenty of equity left in it.

its not about private school
its about borrowing to invest
which is very rarely a good option

have you taken into account the changes in the BTL rules
the dividend tax rules on investments
and the likely impact of Brexit on much of the BTL market

because you are thinking four years
and school is 14 even before you start paying for University

I think low risk would be my route. I would be looking at your cash flow and trying to extend the investment period. 4 years in investment terms is cash in today's market. The discount is not that great TBH.

Ask the school what protection the money would have if it went bust! What happens if your child is unhappy and you wish to leave. Is the discount of the future fees, or are today's prices held - that's quite different.

FWIW, I've had a few clients do this, I do worry about their retirement capital, but that's the choice they are making.

Thank you #dontcallmethatyoucunt (great name btw!)
Agree the discount is really poor and almost designed to discourage big payments up front.
The fees have a 5% accumulator added to them too so overall you really gain little from paying a large number of years up front.
The reason we borrowed against a btl is that at the school they have just left they offered 15% discount for up front fees. So it was definitely worth paying up front.
Now we're being offered 2% with a 5% accumulator built in the benefit seems to come down to simply knowing the fees are paid for a number of years. I agree a low risk investment may be better or we return the borrowed capital (£88 of the £115).

I'm glad you appreciate the irony

If you can afford fees from cash flow then investing the money over a longer period 'could' see higher returns (to be fair plenty of people do exactly this to build a property portfolio, it's not madness'). Many people borrow to invest - I've had one client remortgage to put money in his pension, it was a no-brainier in his position. However you HAVE to be able to sit tight. You have to want both elements.

Looking at your situation, the reason for borrowing, a 15% discount, is no longer there. If you can simply reverse the borrowing (without a repayment penalty) then that would be the most straightforward response. The next is just follow up on your plan, even if it's not fab value.

One thing is for certain, cash is not your friend here. Buy something, school fees or real investments, or return the money. I would also suggest a sensible IFA would be able to offer a view - I would normally offer a firm course of action, but forums are too general to be much real use.

I'm with TIP on this.
Is that £117,000 your total saving? If so I'd be very wary about committing it all on future school fees. What if the school proves unsuitable for one or the other? What if you have unexpected major expenses or health issues or job changes?
You could get 3% with a bit of faffing in current accounts/ regular savers.

it depends. for example, you have a car loan for 3 years at zero percent interest, why would you pay for it in advance. Might as well invest the money on something with a good yield.

If you pay in advance are the fees fixed at this year's rate? If so, school fee inflation is high and you'll be saving much more than the percentages given.