losing my mind - saving for uni

[befuddled321]

Please help! I've spent hours on moneysavingexpert today and I still don't know what to do...

Had an unexpected windfall recently and think it would be clever to put a little bit of it aside for 16 year old DS to have at uni. He is 17 in August, so will be starting university autumn 2025.

Our initial plan was to help with living costs out of our own income but realising this is a bit dim because we have the opportunity to save a bit before then, plus our income is taxed (I am basic rate, DH is higher).

So - presumably it makes sense for us to set him up with either an ISA (and he can have the adult one as he's 16) OR a savings account with a good rate of interest - but I cannot decide WHICH is the better option...and I also don't know how much we should put aside for him, if that makes sense.

He will get a loan for tuition fees but living costs will be at least 30k over the three years I imagine. We COULD, if it were the best idea, set him up with a junior ISA of 9k now, and an adult ISA of 20k. But that is a bit of a stretch for us, and he will need to start using that money from the time he starts Uni - so I don't know what is the most sensible option...can anyone advise? !

He can get a loan towards living costs too.

Many parents pay the rent and the DC uses the maintenance loan to live on.

Have you calculated how much maintenance loan he’s entitled to?

Yes, do this first.

Hi, thanks for these answers. Looking at calculators, our household income is over 60K - so he'd only be eligible for the minimum maintenane loan which is (I think) 4-5K?

We presumed that while he would have to get a loan for tuition, we would fund the maintenance costs out of income. And when it comes to the extra money we've been given, we thought about putting it into high interest accounts or ISAS for ourselves. But given we know that our son will need financial support at uni, this is probably silly as all our income is already taxed...

Whereas if we set up an ISA or savings account for DS, then the interest it earns remains tax free, and he can use that for uni, right?

Does he have a child trust fund? What rate is he getting on that?

If you put it into DS’s name he can then spend it on whatever he likes whereas if you keep it in your name it will stay in your control and you can give it to him when he really needs it for something. Am hearing stories of child trust funds funding fairly luxurious student lifestyles, which might not be where you want your windfall to go.

Can't answer the best tax question but we did save for our 2 before uni. We saved about £28k each. It was then put into a decent interest saving account.
We told them whatever they had left they could use for travelling etc so that it didn't get frittered away. They both paid a years rent upfront out of them each year and lived off the min maintenance loan - topping up from the savings a little if they wanted a trip/special event.
They both finished uni (last one was summer) with about 8k left as they didn't choose expensive accommodation (this is a bit dependent on where you go)
So it worked really well for us.

Do you city have significant savings? If not then, I would use some of the money for yourselves and no, it wouldn’t be silly. You each could put away up to £20K each tax free into ISA’s, or up to £50K each in Premium Bonds.

I’ve read average student living costs are £1K per month based on an academic year.

For now, I would put it all (assuming it’s £40K or less) into two fixed term ISA for two years.

Do you both I meant to say.

Thanks all. @Changed18 - he's a very sensible character so I'm not particularly worried that he would use the money irresponsibly.

@1975wasthebest - thank you, I guess the point is I'm confused about how much interest the money would earn over time and where it's most beneficial.

Let's say we have 60k to save. If DH and I can put 20K into cash ISAs, AND DS can put 20k in a cash ISA now - then surely that is a better than DH and I putting 20K in cash isas and the remaining 20k into high interest savings, because when that 20k earns interest, we will be taxed on it?

Whereas if DS can start 'growing' that 20K now, what he gains remains tax free. Do I have this right?

This. My ds1 blew his child trust fund in the first term at Uni. It wasn't anywhere near the amounts you are talking about saving for your ds but even still we were pretty mad with him. It was mostly saved for him by grandparents. my friend's ds also went through 10k in one year at Uni but at least that was money he's earned himself in a gap year.

If your DS gets an ISA then he’ll get the benefits of an ISA which is tax free interest on his 20k, is that what you mean?

Have you used your current ISA allowance yet? If not, surely the easiest thing to do is for you and DH to each put £20K into ISAs now, and then one of you take out another £20K in April in the new tax year?

I absolutely would not put it in DS's name for the reason mentioned by PPs. It is far to big a sum of money to risk.

@Babyroobs - oh no, sorry about your DS! I know it's a risk, but if it were an ISA is growing for him and it's an isa that he can withdraw from occasionally (ie say he moves 8k a year over to a current account each year) - then surely that is better than DH and I handing over 8k a year out of our own income/savings?

Unless you and your DH have already used the ISA allowance (each) for the year then I'm not following your logic about why it's better to put it in your ds's name.

@Reallybadidea - yes, we will have used our ISA allowance...

For both 22/23 AND 23/24?

@befuddled321 make sure you watch Martin Lewis video about student finance - it's about an hour long and very worth it
You would most likely be better keeping the money for a house deposit for your DS in the future. ML would recommend taking the maintenance loan. Obviously you'd need to top up.
Does the first time buyer ISA still exist where the government gives 1k for 4k saved?

@House4DS - thank you, I will watch. But even if DS does take the maintenance loan, we will only get the minimum and will have to top up - probably by about 8k a year or so. So wouldn't it make sense to put 20k aside now and get it growing?

Maybe put it all in several more savings accounts and avoid the tax that way.

Or how about Premium Bonds? That's up to £100K you could stash away.

It's a hell of a risk giving him £20K to put away in an ISA. From what I understand of ISA's, he could take out the £20K in one go if he wanted to (but that would incur a cost).

@befuddled321 yes that sounds sensible if you don't need it elsewhere. I worked out what DS would need per month and started adding a fraction that to a savings account 2 years earlier. Then there's a chunk of cash ready to pay rent.
A cash ISA might get you 5% interest if you are lucky. My virgin Isa is about that, and allows 3 withdrawals per year.

@1975wasthebest - I thought premium bonds never really worked out as the most lucrative compared to savings or isas in terms of interest?
The problem with putting it into savings accounts for me, and then giving him money later, is surely I'll be taxed on the interest I make?

@House4DS - so did you open a high interest savings account in your DS' name, and keep adding to that?

@befuddled321 no it's in my own name - in the end DS1 did an apprenticeship so I'm still adding to it ready for DS2. Mine is a gradually increasing sum though.

Premium bonds on average don't give a great return, but there's always a chance of a bigger win! And is a good option if you've maxed out elsewhere. Or even just while you make your minds up - they won't be entered into the first month's draw, it's the draw after a full month has passed.

Have a look at buying a student flat or maybe even a house if the windfall and savings allow when you know where your DS is going to study.
You can buy a student flat in cities such as Newcastle, Liverpool, Manchester for about £70k. Your DS could live there rent free (up to you) and still receive the student loan. The purchase would then remain an asset to you and your family to either sell when no longer needed or rent out to future students, about £800 a month at the moment.
Good luck.

Another possibility is a help to buy ISA. We've got one for our dd and hope that it will help her afford a deposit when she's ready to buy her first place.

That seemed to be better than putting something towards uni costs when my dp looked into it.