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? !

⬆️ Good explanation. It is a graduate tax.

Thank you all so so much. It is a lot clearer now, I really appreciate the help!

If your son is not earning an income, or is earning below the basic income tax threshold, he can earn £5,000 interest per tax year on savings, tax-free with the 0% starting rate.

So if you are planning to put the savings in his name, look for a high interest account - (not necessarily an ISA as the rates tend to be a little lower)- for the interest up to that limit.

Rates are available around 5.5% at the moment (eg; Vanquis 90 day notice account 5.5%) so he could save about £90K and not pay savings tax on the interest.
As the savings grow, or your son starts earning an income, the savings can be filtered into an ISA.

Then take out an ISA for your DS in his own name if he's sensible.

I'm looking at transferring an existing ISA to a better paying one, probably with the same building society - the Nationwide is currently offering a bit more than I'm getting. I'm still trying to work out which one, and I have less savings than you're working with but could get a little more interest. I don't have much more money to save at the moment but might do at the end of this tax year or during the next one.

You say you've used current and previous year's ISA allowances - are your existing ISAs already earning good rates? Are there ISAs earning better rates which accept transfers of your existing ISAs? You need to contact the new provider and ask them to make the transfer to keep the tax benefits of the ISA.

For money over the ISA limit, you could put some, up to £20K each, into instant access accounts with a view to subscribing to a new cash ISA or adding to an existing one for 2024/25, and have a plan for what you are going to do and when, while keeping an eye on rates and making sure they stay competitive.

If you have a student loan, they take 9% of your salary
whether you owe £1000 or £100,000

It does not count as borrowing for a mortgage - it counts as a reduction in salary.

Current estimates are that >80% of student loans will not be repaid

If you want to keep the money in your own names rather than your DS, You might benefit from creating a savings ladder to reduce or eliminate any tax on savings, but still able to utilise high rate savings accounts (It's hard to tell without some more detailed figures).

-You and your DH have maxed out your ISAs this tax year to 23/24 ?
-You'll also max out your own and DH ISAs for 24/25, with part of the the lump sum for DS ?
-You need to find a home for another £20K ?

This sounds a little complicated but it is worth a bit of brain power!....
A savings ladder makes use of a quirk in the savings tax rules. The tax doesn't become due until the tax year you have access to the funds.

So, you save £4K in a 2-year high interest fixed rate savings account. The T&C's must state it cannot be accessed until the term is up. The interest is taxed for the year 2025/26 only - even though it has been accruing across the two years. At 5% that's about £410 interest, which I am assuming is within your allowance.
Your DH does the same in his name.

At the same time put some of the remaining - about £3K in a 3-year fixed savings account - again the T&C's must state you cannot access it until maturity (very important). Your DH does the same. Interest due on each account at 5% 2026/27 is about £472 each - again within your allowance.

4 year fixed savings - Continue using this strategy working out how much you can save for each year's maturity date.