What to consider when investing for school fees
Providing a private education for children is often one of the biggest financial commitments families will make. Yet there is a lot to consider to make the journey easier, and to ensure any plans don’t interfere with your way of life now or affect your future.
Average fees for independent day schools in the UK now exceed £22,000 a year (three terms) per child according to the Independent Schools Council (ISC).¹ Careful planning is therefore essential, especially if you are planning to pay for fees by investing rather than relying solely on income. There are several key factors to weigh up.
The following does not constitute advice. You should seek regulated advice before making any investment decisions.
Your timeframe
Because you can predict when you will need to pay school fees, and for how long, you can evaluate what is the best way to save and invest for them based on your timeframe.
- If you have short-term needs – within 3 years – your funds will need to be secure and accessible. Consider a high interest account or with interest rates falling you can also consider our Liquid Reserves Portfolio for a lower risk and stable home for your money.
- If you have a young child or children you may have time – 3 to 15 years – to invest in higher-growth assets such as equities or diversified funds. This period could give your pot a meaningful time to grow and for compounding to work its magic.
You also may want to weigh up the ideal ratio of accessibility and growth – to be able to access a sufficient pot for fees irrespective of how markets are performing in the short term, while also balancing your longer-term focus on growth.
Can you afford it? Assess your wider goals and means
While you might have an idea of when, you should also figure out how – and make sure you can balance your other saving and spending commitments.
A clear financial plan (learn how to build a solid plan here) will help you identify the impact of these commitments and budget accordingly. For example, you should ensure you are meeting your pension contributions, and covering your mortgage costs and other ongoing spending pledges.
Powerful financial tools can quickly give you greater clarity around the affordability of your intentions. And to see if you are realistically on track to achieve your goals for your children, a Financial MOT could be just the ticket to put your mind at rest, and give you useful insights if you need to adjust your course.
Allow for costs that rise over time – and essential extras
It’s crucial to consider that the amount you need for school fees is not based on present costs, it’s based on what they might be in the future – which could be 5, 10 or more years away. And like many things, prices tend to rise more than you might expect. From 2010 to 2023, analysis of IFS figures suggested that private school fees increased by 50% in real terms (after adjusting for inflation), according to The Guardian.²
This trend may even be accelerating. Between January 2024 and January 2025, school fees rose by 22.6% on average, a significant increase attributed to factors including the introduction of VAT on fees, higher National Insurance, and the end of charitable business rate relief, indicates ISC figures quoted by the BBC.³
So while you should naturally always model for inflation in any plans for your future investment growth and spending projections, you should be prepared for even higher prices to make sure you are covered.
Of course, the cost of education is about much more than fees – you must also factor in an often-substantial sum for uniforms, sports and activities (such as music lessons), school trips, boarding or travel costs, to ensure there are no surprises.
The cost of activities and other extras can often be substantial, so plan for them
Being tax efficient is vital
Investing for school fees is likely to have tax implications, which can work in your favour. Parents or grandparents planning to fund a child’s education can significantly improve their outcome by being tax efficient and using tax wrappers to maximise growth.
- Individual Savings Accounts (ISAs). ISAs in a parent’s name offer tax-free growth and can be accessed at any time, a flexibility that makes them popular for school fee planning.
- Gifting and trusts. Grandparents may wish to contribute to a child’s education, too, because if parent’s make a gift the income on the investment is taxed at their rate if the income exceeds £100. Gifting can be a highly tax efficient way of passing on wealth, or setting up a Junior GIA (Junior General Investment Account) or bare trust can make the most of a child’s tax rates if set up by a grandparent. Financial advice may be valuable due to the complexity of these options.
- Junior ISAs. While these allow tax-free growth and income they are more of a long-term vehicle for children, often funded by parents and grandparents. As the funds can’t be accessed for school fees before the age of 18 a Junior GIA can be accessed at any time for the benefit of the child.
Example: How investing efficiently can pay for 3-4 years of school fees
We can show that being efficient when investing can go a long way towards covering the cost of private schooling. (For illustrative purposes only – not a guarantee.)
For example, a 1% fee saving on a £500,000 investment over 10 years could give you an extra £73,000 in your pocket to spend on a child’s education. This assumes inflation of 2.7% and gross investment returns of 6% a year – with all-in annual costs for investment management and ongoing advice of 1.25% versus 2.25%.
See how much more you could have to spend by getting a breakdown of Netwealth’s transparent fees.
Next steps
While paying for a child’s education can bring great rewards, it is a big commitment – and one that requires careful preparation and consideration.
You need to assess whether you can afford it, to make the most of the tax benefits when investing to cover fees, and to be realistic about the impact of time – from a planning and cost perspective. You can’t anticipate all the surprises life will throw at you, but you can prepare for many of them.
To ensure your plans align with your other goals, and to help you manage the complexity of many moving parts, you might benefit from financial advice. It’s hard to beat an impartial viewpoint from experts who have helped many parents along this path before.
For a free initial consultation please get in touch .
³ BBC
Please note, the value of your investments can go down as well as up.
Our advisers offer restricted advice that relates to Netwealth’s products and services and does not consider the whole market. Netwealth does not provide tax or legal advice and does not advise on transfers of pensions with safeguarded benefits.
