Children are an enormous source of joy and satisfaction, but they also imply a great responsibility that extends to the economic level. In fact, one of the greatest costs you will have to face is that of their education. The start of the school year alone involves the disbursement of about 1,212 euros, according to a study carried out by the Organization of Consumers and Users (OCU).
Obviously, the more educational opportunities you want to offer your children, the more you will spend. In these cases, the best solution is to have an economic cushion to ensure a good future. And the key to making the most of those savings is choosing the right financial instrument.
Five financial savings instruments to guarantee your children’s education
1. Children’s savings accounts
When they think about creating an economic cushion for their children’s education, most parents open a children’s savings account. Undoubtedly, it is a good savings instrument that you can use since these accounts do not usually apply administration and maintenance fees, in addition to being associated with promotions or gifts for children.
However, it is important that you bear in mind that these types of accounts are usually a good short-term option, if you want to save to send your children to a summer course abroad, for example, since their profitability It is usually less than the CPI, which means that when the CPI increases over the years, your savings will lose value.
Even so, there are savings accounts with which You can get a 2.5% APR of annual return, being able to have that money when you need it. That is why it is so important to compare different financial tools in order to choose the one that best suits your circumstances.
2. Guaranteed deposits
This is one of the most common savings plans in Spain, although in recent years its profitability has decreased considerably. Despite this, there are deposits in the market with a 3% APR of annual fixed return, which is very interesting since you will be able to overcome the negative effect of the CPI (2.12% on average in the last 20 years) and it will help you save in the medium term.
Bear in mind that the money you have in the deposit cannot be touched during the term of this product, which is usually one year, but can be longer. Similarly, the longer the term, the higher the return.
3. Savings insurance (PIAS)
This is another savings option that you should consider to cover your children’s education since these insurances usually offer more attractive interest rates than bank deposits, being able to reach more than 9% annualized return.
Specifically, you should look at the PIAS (Individual Systematic Savings Plan), since they combine several characteristics that make them very interesting:
- They are liquid (you can touch the money) from the 13th month.
- The money you contribute does not pay taxes. Only profits are taxed, but there is even the possibility of recovering everything without paying any taxes.
- They are unseizable by law. It doesn’t matter if you have debts with the Treasury, Social Security, the bank… No one can touch that money.
- The best PIAS work with investment fund portfolios, having much greater diversification and achieving very good medium-term returns. /long-term.
With this type of financial product, you can save little by little each month and make your money generate the maximum return possible. And by working through insurers, you have the peace of mind of the security of the management and that your money (capital plus benefits) is shielded in case of bankruptcy of the insurer by the Insurance Compensation Consortium.
4. Unit-linked single premium
These products are the vitaminized version of deposits. In other words, like deposits, you contribute an amount of money at the time of contracting it, but on the contrary, the term of the product is not restricted to a minimum of time, but you can touch the money whenever you want. But it is better to use them for the medium term (4-5 years) and let the product have time to generate a good return.
Furthermore, these products normally work through investment funds, and the best with a multi-fund portfolio, making your savings globally diversified. And you also have the peace of mind of working through insurers, which give you greater security than if you enter the investment funds directly.
Like the PIAS, In these products you will only pay taxes on the benefits obtained, which is a very interesting tax advantage.
5. Investment funds
This financial instrument works by participating in certain assets managed by a team of professional investors. It is a savings option that allows you to obtain a certain return from a minimum amount.
You should know that investment funds are made up of a portfolio of titles, terms, returns and volatilities that vary in their level of risk, so there is no guaranteed return and you could even lose part of the capital. However, they have a very advantageous tax treatmentsince they are exempt from taxation until they are reimbursed, which you can request at any time.
Each fund is classified according to its diversification by sectors, by countries and their behavior in recent years. Not all mutual funds are the same. That is why it is important that you inform yourself well about the evolution of the fund in recent years before joining it.
The ideal is to have a portfolio of funds (several of them) to help you better diversify your savings and balance your financial planning correctly. And above all, these are products to be used in the medium/long term. Never in the short term.
In any case, there are consultancies, such as FINANFOX, that can help you choose the most appropriate financial instrument that will allow you to save money for your children’s education. If you are concerned about their future, you can request a free financial planning session in which a professional will analyze your finances and financial goals to provide you with a personalized action plan.